What Is Reverse Cash-and-Carry? Negative Funding Explained
A reverse cash-and-carry goes long a perp and short spot to collect negative funding. Learn how margin borrowing works, what it costs, and a worked example.
Updated
A reverse cash-and-carry is a delta-neutral trade that goes long a perpetual futures contract and short the same coin on the spot market, earning funding when the funding rate is negative. It is the mirror image of a cash-and-carry trade. Because you cannot sell spot you do not own, the short leg requires borrowing the coin, and that borrow cost is what usually decides whether the trade works.
Key takeaways
- Used when funding is negative, meaning shorts pay longs.
- Long the perp, short spot in equal size, so price moves cancel.
- Shorting spot means borrowing the coin on margin and paying interest on it.
- Net return = funding received − borrow interest − fees.
- Negative funding is often short-lived, and borrow rates tend to rise at the same time.
- Holders who already own the coin can run it without borrowing, by selling spot and buying the perp.
Why funding turns negative
A funding rate keeps a perpetual contract's price close to spot. When too many traders are short and the perp trades below the spot index, funding turns negative and shorts pay longs. This often happens during sharp sell-offs, after bad news on a specific coin, or when many holders hedge their spot with perp shorts.
A trader who is long the perp collects those payments. To avoid price risk, they also hold an equal short on spot. The position is delta-neutral, meaning its value barely changes with price: if the coin falls 10%, the spot short gains what the perp long loses.
How the trade is built
- Borrow the coin. In a spot margin account, post stablecoins as collateral and borrow the coin.
- Sell it on spot. This is the short leg. You now owe the coin and hold the sale proceeds.
- Buy the perp. Open a long of the same size, either on the same exchange or another one with more negative funding.
- Collect funding and pay interest. Every funding period you receive the negative rate on your perp notional. Borrow interest accrues continuously, often hourly.
- Exit. Close the perp, buy the coin back on spot and repay the loan.
| Cash-and-carry | Reverse cash-and-carry | |
|---|---|---|
| Spot leg | Buy spot | Borrow and sell spot |
| Derivative leg | Short perp or future | Long perp or future |
| Earns when | Funding is positive or futures trade above spot | Funding is negative or futures trade below spot |
| Extra cost | Capital tied up in spot | Borrow interest on the coin |
| Availability | Any coin with a perp | Only coins you can borrow |
Worked example: net return after borrow cost
Assume these illustrative numbers:
- Perp funding: −0.03% per 8h, which is 32.85% APR received by longs (0.03 ÷ 8 × 8,760).
- Borrow rate on the coin: 15% APR.
- Position: $10,000 per leg, with $5,000 of margin on each side, so $10,000 of capital.
- Fees: 0.05% per perp fill and 0.1% per spot fill, so $10 + $20 = $30 for entry and exit.
Held for 7 days (21 funding periods):
| Item | Calculation | Amount |
|---|---|---|
| Funding received | $10,000 × 0.03% × 21 | +$63.00 |
| Borrow interest | $10,000 × 15% × 7 ÷ 365 | −$28.77 |
| Fees | Four fills | −$30.00 |
| Net profit | +$4.23 |
Held for 30 days (90 funding periods), if rates stay the same:
| Item | Calculation | Amount |
|---|---|---|
| Funding received | $10,000 × 0.03% × 90 | +$270.00 |
| Borrow interest | $10,000 × 15% × 30 ÷ 365 | −$123.29 |
| Fees | Four fills | −$30.00 |
| Net profit | +$116.71 |
The 30-day result is about 1.17% on capital, or roughly 14.2% annualized. The headline funding rate was 32.85% APR, but borrow interest takes almost half of it, and fees wipe out most of the profit on a short hold.
A useful check is the break-even holding period. In this example, funding brings in $9.00 per day ($3 × 3 periods) and borrow interest costs about $4.11 per day, so the trade nets roughly $4.89 per day before fees. Covering $30 of fees takes about 6.1 days (30 ÷ 4.89). If you expect negative funding to last less than that, the trade is likely to lose money even if every rate stays the same.
The holder version
If you already own the coin, you can run the trade without borrowing: sell your spot and buy an equal perp long. You keep the same price exposure you had, but now you receive negative funding instead of holding idle coins. In the example above, that removes the $123.29 of borrow interest, so 30 days would net $270 − $30 = $240. The trade-offs are counterparty risk on the perp exchange, liquidation risk on the perp if you use leverage, and giving up anything the spot coins earned, such as staking rewards.
The dated futures version
A reverse cash-and-carry also works with dated futures. When a future trades below spot, a condition called backwardation, a trader shorts spot and buys the future. At expiry the future converges to spot and the trader keeps the gap, minus borrow costs. See contango and backwardation for how futures prices relate to spot.
Risks
- Funding flips. Negative funding can return to positive within hours, and then your long perp starts paying.
- Borrow rate spikes. Borrow rates are variable. When everyone wants to short a coin, rates can climb fast and exceed the funding you earn.
- Borrow availability and recall. The coin you want may have no lendable supply, and some platforms can reduce or recall loans.
- Short squeeze liquidation. If the price jumps, your spot short loses. If its margin is separate from the perp long, it can be liquidated even though the combined position is flat.
- Execution. Four fills across spot and perp markets add fees and slippage, and thin markets can make the spot leg expensive.
See arbitrage risks for more.
How ArbTide helps
ArbTide's live funding rates page shows which coins currently have negative funding, normalized to APR. The reverse cash-and-carry strategy page explains how to weigh that funding against borrow costs.
Frequently asked questions
- What is a reverse cash-and-carry trade?
- A reverse cash-and-carry is a delta-neutral trade that goes long a perpetual or futures contract and short the same coin on the spot market. With perpetuals, it earns funding when the funding rate is negative, because shorts then pay longs.
- How do you short spot crypto for a reverse cash-and-carry?
- You borrow the coin in a margin account and sell it, then buy it back later to repay the loan. You pay interest on the borrowed coin for as long as the position is open.
- When is a reverse cash-and-carry profitable?
- It is profitable when the funding you receive on the long perp exceeds the interest you pay to borrow the coin plus trading fees on all four fills. Negative funding must also last long enough to cover the entry and exit costs.
- What is the difference between cash-and-carry and reverse cash-and-carry?
- A cash-and-carry buys spot and shorts the perp to earn positive funding. A reverse cash-and-carry does the opposite, shorting spot and going long the perp to earn negative funding, and it adds a borrowing cost because shorting spot requires a loan.
- What are the main risks of a reverse cash-and-carry?
- Funding can flip back to positive, borrow rates can rise sharply, the lender can recall the borrowed coin, and the spot short can be liquidated in a price spike if its margin is kept separate from the perp long.