Positive funding on a hedged pair meets a 12.89% best day against the short leg
Should the basis trader keep the spot-ETH, short-perpetual position at full size for the funding, or cut it so the short leg's margin can survive a day like Sunday's?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 18 January 2021, ETH rose 12.98%, from 1,232.50 to 1,392.51, but the path was violent: a -19.30% day on Thursday, a 37.99% range, and a largest 1-hour move of 5.49% on Friday at 01:00 UTC. Funding averaged 0.0732% per 8 hours, peaked at 0.1996%, and never went below 0.01%. An illustrative basis trader holds spot ETH and an equal short in the perpetual, earning that funding. Volume ran 2.42 times the prior 12-week average, and ETH outperformed BTC by 22.93 percentage points.
Judgment
Funding never turned negative this week, so the position earned carry throughout. The exposure sits on the short leg's margin, which was pressed by Sunday's 12.89% best day and by the week's 12.98% rise, not by Thursday's 19.30% fall, which helped it. Keep the trade, but size the short so its margin absorbs the largest observed hourly move plus a full up day like Sunday's without forced covering, and hold the spot leg liquid enough to top that margin up same-day. Treat the 0.0732% average, not the 0.1996% peak, as the expected income.
What would change it
If the 8-hour funding rate falls to or below zero, the carry case ends and the position should be closed. If up days and hourly moves settle well below 12.89% and 5.49% for several weeks, the short leg can be enlarged towards full size.
What sets this case apart
The hedge fixes directional risk but not margin timing risk; the failure mode is the short leg being pressed on up moves like Sunday's, not on ETH's down days.