How to run a carry trade or a self-directed borrow
The funding rate tells you which regime you are in. Lesson 2 showed you how that number is built and what it means. This lesson tells you what to do with it. High funding means carry is open — hold spot, take the opposite side on the perpetual, and it pays you. Low funding means the borrow is cheap — take the same position in reverse, and it lets you raise dollars without a lender. Same mechanics, opposite direction. Exchanges also list expiring futures contracts that price this same trade differently, and basis net of carry tells you which of the two to use.
The carry trade and the borrow are the same position.
Every carry trade has a mirror image. When one side is collecting yield, the other side is paying for dollar access — they are the same position entered from opposite sides. High funding and a wide basis make carry attractive and borrowing expensive. Low funding and a narrow basis make borrowing cheap and carry thin. The environment tells you which side to be on. What you need tells you which direction to run it.
Two instruments price this spread differently: the perpetual futures contract, where the rate floats every settlement period, and an expiring futures contract, where the rate is locked at entry and decays to zero by settlement.
Hold spot BTC. Short the BTC-USD perpetual in equal notional. Your short perp collects the funding payment from longs every settlement period. Makes sense when funding is elevated, Regime 1 from Lesson 2. At 0.03% per 8h the annualized yield is 32.85% — you are being paid to be short leverage.
Sell spot BTC to raise dollars. Buy the BTC-USD perpetual in equal notional. Your long perp pays funding at each settlement, but you have dollar liquidity without a lender. Makes sense when funding is low. The rate floats with the market for as long as you hold the position — there is no lock.
Same position. If you are short the perp you collect funding; if you are long the perp you pay it. High funding: run the carry. Low funding: run the borrow. The rate is your signal.
Unlike the perpetual, an expiring futures contract has a fixed settlement date, after which it stops trading and converges to the spot price. Most crypto-native exchanges list monthly and quarterly contracts (the current quarter and the next one or two out, sometimes called bi-quarterly or tri-quarterly when you are looking two or three quarters ahead), and Deribit additionally lists a longer-dated annual contract. Each tenor prices its own basis and decays to spot on its own settlement date — a nearer-dated contract typically carries a smaller basis than a further-dated one, because there is less time for the rate to compound.
Both the perp funding rate and the expiry basis move before you trade — the basis is itself influenced by perp funding, since arbitrage capital links the two. Neither is fixed while you are just watching. The distinction is about what happens after you put the trade on. A spot-vs-perp position is a floating rate trade: funding resets every settlement period for as long as you hold it, and can rise or fall against you. A spot-vs-expiry position is a fixed rate trade: the expiry trades at a premium above spot in contango markets, and that premium decays to zero by the settlement date regardless of where price goes in between. The moment you enter, the annualized basis you locked in is fixed — it will converge to exactly zero at expiration, and nothing that happens to funding or price between now and then changes the rate you locked.
Hold spot BTC. Short the quarterly expiry at the current futures price. The premium the futures trades above spot converges to zero at expiry and you collect it. At $900 basis on $66,500 spot with 74 days to expiry, the locked yield is 6.67% annualized. It will not move.
Sell spot BTC to raise dollars. Buy the quarterly expiry at the current futures price. You pay the basis as your effective borrow cost, fixed from entry. At 6.67% annualized you have borrowed dollars at a fixed rate for 74 days with no lender.
Same position. Short the expiry and you collect the basis as it converges; long the expiry and you pay it. High basis: run the carry. Low basis: run the borrow. The annualized basis is your signal.
The funding regime from Lesson 2 and the annualized basis together tell you which environment you are in.
BNOC: which leg is richer.
Once you know which direction to run — carry or borrow — basis net of carry (BNOC) tells you which of the two instruments, the perpetual or the expiration future, is pricing the spread more generously, and whether the difference is large enough to run both legs simultaneously as a delta-neutral spread. BNOC is the annualized perpetual funding rate minus the annualized expiry basis. A positive BNOC means the perp is pricing carry richer than the expiry — the perp is the expensive leg.
BNOC = 27.38% − 6.67% = +20.71% → perp is pricing carry 21 points richer
Perp is expensive. Retail crowding in the perp vs. institutional expiry market.
Expiry is expensive. Institutional hedging demand has pushed the basis above the perp rate.
Both legs priced equivalently. No meaningful spread between them.
BNOC does not tell you whether to run carry or a borrow — the environment does that. BNOC tells you which leg of the carry market is priced more richly, and whether the spread is wide enough to trade delta-neutral rather than just running a single leg.
Read the setup before every trade.
Check the funding regime from Lesson 2. Regime 1 (high positive) is a carry environment. Regime 3 and 4 are borrow environments. Regime 2 is neutral — carry is thin and borrow sits at the floor.
Annualize the perp funding rate: per-period rate times (24 divided by settlement interval hours) times 365. Above 15–20 percent, carry is open on the perp leg; below 12 percent it is thin after execution costs.
Annualize the expiry basis: (futures minus spot) divided by spot, divided by (days to expiry divided by 365). This is the locked yield on a spot-expiry carry, or the locked cost on a spot-expiry borrow.
Calculate BNOC: annualized perp rate minus annualized expiry basis. Large positive means the perp is rich — for carry, short perp and long expiry; for borrow, use the expiry leg. Near zero, run the single leg with the better rate.
If running a borrow, calculate your liquidation price on the long derivatives leg before withdrawing any cash. Confirm at least a 20 to 30 percent buffer between spot and liquidation, and size the withdrawal accordingly.
Selling spot BTC to raise dollars is a taxable disposition. The capital gain is calculated from your original acquisition cost, not the futures price. Know your cost basis before executing the borrow structure. Consult a tax advisor if you are sitting on significant unrealized gains.
Same market, two environments, two different trades.
The environment tells you the direction. BNOC tells you the leg.
High funding and high basis: carry environment. Both legs pay you to be short. BNOC shows which leg is richer and whether a perp-vs-expiry spread is worth running. Low funding and low basis: borrow environment. Both legs let you access dollars cheaply. BNOC shows which leg is cheaper and whether to run a single-leg borrow or a spread. The carry trade and the borrow trade are always the same position entered from opposite sides — the regime tells you which side to be on.
This content is produced by Harmonic for educational purposes. It is strategy education, not investment advice. We are not tax lawyers — consult a professional for your specific situation.
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