How to Use the Funding Rate Arbitrage Backtester

The Funding Rate Arbitrage Backtester on Decentralise.com lets you simulate how the Funding Rate Arbitrage strategy would have performed on any supported asset over any historical period. Instead of guessing whether the strategy is profitable for a given token, you can run it against real market data — with real funding rates, real spreads, and real trading fees — and see the results in detail.

This guide walks you through every step: choosing your parameters, running a backtest, and reading the results.

What You'll See When You Open the Backtester

The backtester interface has two main areas. On the left, you'll find the parameter panel where you configure everything about the simulation. On the right, the results area shows charts and metrics after you run a backtest.

Step 1: Choose Your Instruments

The strategy requires two instruments: a spot market for buying the token and a perpetual futures market for shorting it. You configure these as Leg 1 (spot) and Leg 2 (perp).

For each leg, select the exchange and the trading pair. For example, you might choose Binance Spot ETH/USDT as Leg 1 and Hyperliquid ETH-PERP as Leg 2. The legs can be on the same exchange or on different ones.

The available pairs depend on what historical data the platform has collected. Major tokens like ETH and BTC are available across most supported exchanges.

Step 2: Set the Time Period

Choose your Period Start and Period End dates. This is the window over which the strategy will be simulated.

A few things to keep in mind when choosing a period. Longer periods give you a better picture of how the strategy performs across different market conditions — bull runs, corrections, and sideways markets. Short periods (a few days) are less meaningful because entry/exit fees can dominate the results. If you want to understand seasonal patterns, try running the same asset over multiple distinct periods and comparing.

Step 3: Configure Capital and Leverage

Capital ($) — the starting amount in USDC or USDT that the strategy has to work with. The default is $10,000. You can set this to any amount to see how the strategy scales.

Leverage — the leverage used for the perpetual futures leg. Higher leverage means less capital is locked up as margin, leaving more room for spot purchases and reserve. However, higher leverage also means tighter liquidation thresholds. The default of 5x is a reasonable starting point for most assets.

Step 4: Set Reserve Thresholds

The reserve is a safety buffer that protects your position from liquidation during price swings. Three thresholds control how the system manages it:

Reserve Low (%) — if the reserve drops below this level (default: 5%), the system reduces the position to free up capital. Think of this as the "danger zone" threshold.

Reserve Target (%) — the ideal reserve level (default: 10%). After any rebalancing event, the system adjusts the position so the reserve returns to this target.

Reserve High (%) — if the reserve exceeds this level (default: 15%), the system increases the position size to put idle capital to work. Think of this as the "too much cash sitting around" threshold.

For your first backtests, the defaults work well. If you see frequent rebalances in the results, consider widening the gap between Low and High. If you see a liquidation event, try increasing the Target.

Step 5: Add Staking (Optional)

Staking APR (%) — if the token you're buying on spot can be staked (like ETH), enter the approximate annual staking rate here. The backtester will calculate additional staking income earned on the spot tokens throughout the period.

Leave this at 0% if the asset doesn't support staking or if you want to see the strategy's performance from funding alone. You can read more about staking in our Crypto Staking Guide.

Step 6: Review Fees and Order Types

The backtester automatically fills in default fee rates (VIP-0 tier) for the exchanges you selected. If you have a higher VIP level with reduced fees, you can override these values manually.

You'll also see Order Type selectors for three actions: opening the position, closing the position, and rebalancing. Each can be set to Maker (limit order, lower fee) or Taker (market order, higher fee but guaranteed execution). Taker is the default and the more conservative assumption — if your real execution would use limit orders, switching to Maker will show you better results.

Step 7: Run the Backtest

Click the Run button. The backtester processes minute-by-minute historical data, simulating every funding payment, spread change, and rebalancing event. Depending on the period length, this may take a few moments.

Reading the Results

Once the backtest completes, the results area populates with several tabs. Here's what each one tells you.

Summary Tab

This is your dashboard. Sixteen metrics are organized in four groups:

P&L metrics show the bottom line: Total P&L (profit or loss in dollars), ROI (as a percentage of starting capital), Annualized ROI (useful for comparing periods of different lengths), and Final Equity (what your portfolio would be worth at the end).

P&L Breakdown shows where the profit came from (or where it was lost): Funding P&L (the main income source), Spread P&L (gain or loss from spread changes), Staking P&L (if applicable), and Total Fees (all trading costs combined). These four components add up exactly to your Total P&L.

Position details show how the position evolved: Initial Lots (how many tokens you started with), Final Lots (how many you ended with — differs if rebalancing occurred), and the Entry and Exit spreads.

Reserve & Rebalancing shows how the safety mechanism performed: the range of reserve levels throughout the period, how many rebalances happened (broken down into reduces and increases), what those rebalances cost in fees, and the total duration in days.

Spread Tab

Daily candlestick charts showing how the spread between spot and perp prices moved over time. This helps you understand spread volatility for the pair — wide, unstable spreads mean more uncertainty in entry and exit pricing.

Funding Tab

Three views of funding data. Daily Funding shows each day's payment (green bars for income, red for expense). Cumulative Funding shows the running total — ideally a steadily rising line. APR Daily converts each day's funding into an annualized rate, so you can see how the yield fluctuates.

This tab quickly reveals whether an asset has consistently positive funding or whether it goes through extended negative periods.

Portfolio Tab

A minute-by-minute view of your portfolio health: equity over time, reserve levels, position size changes (where you can spot rebalancing events as sudden steps), and the unrealized P&L on the perp leg.

Staking Tab

Appears only if you set a Staking APR above zero. Shows the daily staking yield in annualized terms.

Events Tab

A detailed log of everything that happened during the backtest: every rebalancing event (with before/after position sizes, reserve levels, and fees) and every trade action (open, close, reduce, increase) with per-trade P&L.

Export Tab

Download the raw backtest data as CSV for further analysis in a spreadsheet or your own tools.

Practical Tips

Start with major assets. ETH and BTC have the deepest liquidity and the most consistent funding history. Once you understand the results on these, explore smaller-cap tokens.

Compare exchanges. The same token can have different funding rates on different exchanges. Run the same backtest with different exchange combinations to find the most profitable pairing.

Watch the fee impact. If your Total Fees are close to your Funding P&L, the strategy is marginal for that configuration. Try a longer period, different exchanges, or Maker order types to improve the ratio.

Look at Annualized ROI, not just Total P&L. A 2% return over 7 days is very different from 2% over 6 months. Annualized ROI normalizes for time and makes comparisons meaningful.

Check the Funding tab for consistency. A high average funding rate is less useful if it came from a few extreme spikes surrounded by negative periods. The cumulative funding chart reveals how steady the income really is.

Don't over-optimize reserve thresholds. Tight thresholds (e.g., Low 8%, Target 10%, High 12%) cause frequent rebalancing, which generates fees. The defaults (5/10/15%) are a good starting point for most assets and conditions.

What's Next

The backtester gives you historical insight — it shows what would have happened. Keep in mind that past performance doesn't guarantee future results, and live execution introduces additional variables like slippage and execution timing.

Use the backtester to identify assets and configurations that have performed well historically, understand the risk profile of different setups, and build confidence before allocating real capital.

Explore the backtester at Decentralise.com/backtester and start testing strategies today.