Funding rate arbitrage, also called cash-and-carry, is a delta-neutral strategy that captures the funding fees paid on perpetual futures without taking on directional price risk. It works by holding an equal notional amount of spot Bitcoin long and perpetual futures short, so gains and losses on price movement cancel out while the funding payments keep accruing.
Why the trade works during bull markets
Perpetual contracts tend to trade at a premium to the spot index during strong uptrends, since more traders want to go long with leverage than want to go short. That premium pushes funding rates positive, meaning longs pay shorts every 8 hours. By being the short side of that funding payment while holding an offsetting spot position, a trader collects that fee as close to risk-free as crypto gets, at least with respect to price direction.
Operational risk hiding behind a delta-neutral label
Delta-neutral doesn't mean risk-free. If spot price spikes sharply, the short perpetual leg shows an unrealized loss even though the combined position is still profitable overall, because the spot leg has gained an equivalent amount. The danger is that if collateral isn't shared or transferred between the spot and futures accounts, the futures leg can get liquidated on its own even while the portfolio as a whole would have been fine. That single operational gap has wiped out otherwise sound arbitrage positions before.
Making the strategy work in practice
Using a cross-collateral or unified margin account, where spot holdings themselves count as margin for the derivatives side, closes much of that operational gap. It's also worth tracking funding rate regimes over time and exiting the trade when annualized funding drops below what a comparable money market yield would pay, since the strategy stops being worthwhile once the fee income no longer beats a simpler, lower-risk alternative. Spot purchase fees, futures maker and taker fees, and withdrawal slippage all eat into the net yield too, and should be subtracted before deciding whether the trade is actually worth putting on.