In the contract market, most people focus on the direction of price movements and trade aggressively, resulting in either huge profits or liquidation. But there is another way—arbitrage trading. It doesn't require you to guess the market direction; you just exploit pricing discrepancies in the market, with significantly lower risk than one-way positions.

**Cash and Futures Arbitrage: Wait for the Price Difference to Revert**

The principle is simple: the prices of the same asset in futures and spot markets are not always aligned. Opportunities often arise from the spread between Bitcoin perpetual contracts and spot prices.

Here's how it works—when the perpetual contract price is more than 3% above the spot index, for example, if the spot BTC is at 30,000 USDT and the contract is quoted at 31,000 USDT (a 3.3% premium), you can simultaneously buy 1 BTC in the spot market and open a short position of 1 BTC in the futures contract. When the spread narrows back to around 0.5%, you close both positions. After deducting fees, you can earn approximately 2.8%.

But there's a key point—short-term, the spread might continue to widen, so you need sufficient capital to avoid forced liquidation. Use 2-3x leverage on the short position to leave yourself a buffer.

**Funding Rate Arbitrage: The "Dividend" Mechanism of Perpetual Contracts**

Perpetual contracts have a unique feature called the funding rate, settled every 8 hours, which involves transfer fees between long and short positions. When the market is bullish (more longs), the funding rate is usually positive, meaning longs pay shorts—that's the arbitrage opportunity.

When the rate stays high, for example, over 0.05%, you can buy spot and open an equal-sized short contract simultaneously. Every 8 hours, you pay or receive the funding fee. With a 0.1% rate, three settlements a day, the annualized return can exceed 100%.

When choosing coins, opt for those with high trading volume and stable funding rates to avoid getting caught. Also, pay attention to the historical fluctuations of the funding rate—extremely high rates often signal market extremes and risk.