How to create a Funding Rate Arbitrage Strategy?
- Apr 3
- 6 min read
Anytime you trade on margin, you are borrowing money or assets from your broker. Trading on margin has become such a norm nowadays that every broker wants you to trade on high leverage.
For the broker, offering leverage to their clients allows the client trade much bigger positions, which means higher revenue from trading commissions and markups on spreads and funding rates.
For us, funding rate arbitrageurs, this is our opportunity to make money. To find a funding rate arbitrage, we want to create a hedged position (long + short) on an asset where the net sum of funding rates generates a positive yield.
Let's start with the first important question: "What is a funding rate?"
What is a Funding Rate?
A funding rate is a cost/reward for opening a leveraged position. Funding rates come in many shapes.
In this article, we will analyze funding rates on the asset Gold across different product classes:
Physical Gold
CFD Gold
GLD - Gold ETF
COMEX Gold Futures
Gold Crypto Perpetuals
An important note is that you can buy Physical Gold and Gold ETFs with cash instead of margin. This means that the funding rate on these position would be 0. This is important for strategies such as Cash-and-Carry Arbitrage which I will explain later in this article.
Physical Gold
You can buy physical gold from brokers such as Interactive Brokers (IBKR). When buying physical gold, the broker will hold the gold in their custody and assign ownership to you. It's the most direct way to invest in Gold but transactions costs can be high for this product. It is ideal for long-term holding rather than frequent trading.
At IBKR you can buy physical gold on margin. You can calculate their margin rates here: https://www.interactivebrokers.com/en/trading/margin-rates.php
As of 3rd April 2026. the margin rate on IBKR Lite for 10k USD accounts is 6.14%. In other words, if you open a long position on IBKR, the annual funding rate would be 6.14% based on your position size.
If you want to short physical Gold, you will need to borrow Gold from IBKR for short-selling. The borrow fees for Gold can be found here: https://www.interactivebrokers.com/en/pricing/commissions-metals.php
Currently, the short lending rate on Gold at IBKR is 4.64%, Or in other words, the annual funding rate to short Gold is 4.64% which means, you are still paying your broker to create a short position. However, short-selling increases cash balance on your account so in theory, you can use that cash to invest in treasuries or other assets that generate a positive yield. But short positions also require a maintenance margin, which might not make it very feasible for the average retail client.
tldr:
Long annual funding rate: 6.14% (positive rate + long = you're losing money on your position)
Short annual funding rate: -4.64% (negative rate + short = you're losing money on your position)
CFD Gold
If you trade CFDs or "Contract for Difference", is a product type where you can speculate on the price of the asset without owning the underlying.
The funding rate for CFDs can be found here: https://www.interactivebrokers.co.uk/en/trading/ibkr-index-metals.php
Long annual funding rate: 5.14% (positive rate + long = you're losing money on your position)
Short annual funding rate: 2.14% (positive rate + short = you're making money on your position)
Finally, we have a product that pays us money for holding a short position!
