People often ask where the money comes from when one leg is long and the other is short. The answer is straightforward: it comes from traders paying funding for their positions.
Crowded longs pay funding
Perpetuals have no expiry. Funding helps keep their prices close to spot. When a contract is heavily crowded on the long side, longs periodically pay shorts. When shorts become crowded, the flow reverses. The venue settles the transfer; the payment comes from the opposite side's open positions.
Why the same asset has different funding on different venues
Venue users are different, and capital does not move instantly. Some traders only use Binance, some prefer Lighter, some want high leverage, and others only trade familiar large-cap contracts. A trader chasing a move may not care about funding or wish to move collateral elsewhere.
That is how one venue can become crowded while another remains calmer. The resulting difference in funding is the raw material for the trade.
You are paid for convenience, urgency, and fragmentation
Many traders pay a little more because staying where they are is easier. Moving capital, opening a second account, learning new rules, and monitoring two legs all take effort. An arbitrageur handles that work and carries the operational risk that comes with it.
A note for newer traders
Some high-leverage traders focus entirely on direction and willingly pay high funding to chase a move. Arbitrage uses a slower, more operational process. If a hedged setup turns into a discretionary directional bet halfway through, its original risk profile has changed.
Keep the two legs matched, leave margin room, and accept that a shrinking spread is part of the process. Directional speculation is a different game with different risks.
Why good spreads become thinner
A thick, stable spread attracts capital. Traders buy the lower-funding side and short the higher-funding side, pushing both rates toward the middle. The opportunity shifts elsewhere, so the job is continuous screening rather than loyalty to one old setup.
A service with real costs
Funding arbitrage carries slippage, margin imbalance, venue risk, and reversals. Higher return should always lead to one extra question: what inconvenience or risk is the market paying me to take?
Some traders pay for convenience, some for urgency, and some for time. The arbitrageur supplies capital, patience, and execution in return for compensation.