What Is a Carry Trade? Definition & Example

A carry trade — also called the basis trade or cash-and-carry — collects funding payments while holding no directional exposure. You take the side of the perpetual that receives funding, then hedge the price risk with an equal and opposite spot position.

The standard construction when funding is positive: buy $10,000 of spot BTC, short $10,000 of BTC perpetual. Price movements cancel — a rise gains on spot and loses on the short, a fall does the reverse — while the short receives funding from longs every interval. At 0.01% hourly that is roughly 87.6% annualised on the notional, with no view on where BTC goes.

That figure is why the strategy attracts serious capital, and why funding rarely stays extreme for long: institutional carry desks arbitrage it back toward neutral.

The risks are specific and worth listing. The rate can flip, turning income into cost while you are positioned. Execution costs money — two legs, entered and exited, with fees and slippage on each, which on thin markets can consume the carry entirely. The perp leg can still be liquidated: your combined book may be flat, but the short is a leveraged position with its own margin requirement, and a sharp rally can close it while your hedging spot sits untouched. And the legs may live on different venues, adding counterparty and transfer risk.

The liquidation risk is the one that surprises people. Delta-neutral does not mean safe — it means the combined position has no directional exposure. Size the perp leg conservatively and keep spare margin, or an unremarkable move will end the trade at the worst moment.