Detailed Instructions

First, calculate the basis spread by comparing the spot price of an asset (e.g., ETH) on a DEX like Uniswap V3 with its perpetual futures price on a platform like GMX or dYdX. The formula is: Basis = Perpetual Price - Spot Price. A positive basis suggests a potential cash-and-carry trade (long spot, short perpetuals). A negative basis suggests a reverse cash-and-carry trade (short spot, long perpetuals).

• Sub-step 1: Query real-time spot price from a DEX liquidity pool or reliable oracle like Chainlink.
• Sub-step 2: Fetch the current index price and funding rate for the perpetual contract on the futures exchange.
• Sub-step 3: Calculate the annualized implied yield: ((Perpetual Price / Spot Price) - 1) * (365 / Days to Expiry) for dated futures, or factor in the funding rate for perpetuals.

Tip: Ensure the calculated yield exceeds your estimated transaction costs (gas, fees, slippage) and any borrowing costs for the spot leg to guarantee a profitable arbitrage.

Detailed Instructions

For a standard cash-and-carry trade, you need to be long the spot asset and short the perpetual future. This requires capital for the spot purchase and collateral (margin) for the short futures position.

• Sub-step 1: If you don't hold the asset, borrow it via a lending protocol like Aave (e.g., borrow ETH) or purchase it directly with stablecoins. Record your entry spot price precisely.
• Sub-step 2: Deposit the borrowed or purchased asset as collateral on the futures platform. On dYdX, this would involve connecting your wallet and depositing USDC or ETH into your trading account.
• Sub-step 3: Open a short position on the perpetual futures market for an equivalent notional value. Use a limit order to control entry price and minimize slippage. The position size should be hedged 1:1 with your spot holding.

javascriptCopy
// Example: Checking spot price and opening a short (conceptual)
const spotPrice = await uniswapV3Pool.token0Price();
const perpPrice = await perpExchange.getMarkPrice('ETH-USD');
if (perpPrice > spotPrice * 1.02) { // 2% positive basis
    // Execute trade logic
}

Tip: Use a multisig or smart contract wallet for large trades to enhance security and execution control.

Detailed Instructions

In a perpetual futures trade, the funding rate is the critical mechanism that maintains price convergence. If you are short a perpetual with a positive funding rate, you will receive payments from longs. If the funding rate is negative, you will pay longs. This directly impacts your trade's profitability.

• Sub-step 1: Check the funding rate interval (e.g., every 8 hours on dYdX, every 1 hour on GMX) and the current rate magnitude and sign.
• Sub-step 2: Actively monitor rate changes. A shift from positive to negative can turn a profitable cash-and-carry trade into a loss-making one if the basis hasn't narrowed.
• Sub-step 3: Factor cumulative funding payments into your P&L calculations. Your profit is the initial basis minus costs plus/minus net funding.

Tip: Consider using protocols like Mean Finance that automate basis trades and handle funding rate management, reducing manual oversight requirements.

Detailed Instructions

The trade is profitable when the basis converges—the spot and futures prices move closer together. Exit involves simultaneously closing the futures position and selling the spot asset (or repaying the loan).

• Sub-step 1: Set price alerts or use a monitoring bot to track the basis in real-time. Define a target profit threshold (e.g., basis narrows to 0.5%).
• Sub-step 2: Execute the exit: Close the short perpetual futures position with a market or limit buy order. Immediately sell the spot ETH on the DEX or repay the loan if you borrowed.
• Sub-step 3: Verify final P&L. Calculate: (Spot Exit Price - Spot Entry Price) + (Perp Entry Price - Perp Exit Price) + Net Funding - Total Fees.

solidityCopy
// Conceptual view of an exit condition in a smart contract
function checkExitCondition(uint256 currentBasis) public view returns (bool) {
    // Exit if basis is below target or funding rate turns unfavorable
    return currentBasis <= targetBasisThreshold;
}

Tip: Have a pre-defined exit plan for adverse scenarios, such as the basis widening further or funding costs becoming unsustainable, to limit potential losses.