Carry · Returns and funding constraints
Separate Funding, Basis, and financing costs; study Carry through cash flows and margin.
Observation
Perpetual funding, spot/futures basis, and lending rates may provide holding returns. Displayed annualized figures are maturity conversions; they do not imply continuous reinvestment on identical terms.
Mechanism
One side needs leverage, maturity, or hedging; the other provides capital and bears basis, financing, and counterparty risk. Long spot plus short futures reduces directional exposure, but does not eliminate margin use or delays in transferring funds between venues.
Hypothesis
Study two hypotheses separately without mixing accounts: whether a locked spot/dated-futures spread covers financing and both legs' execution costs, and whether a previously visible Funding state predicts net cash flows at the next settlement. Future funding rates cannot be current signals.
Data
Record specifications, settlement and publication times, prices per leg, available borrowing limits, interest rules, and margin requirements. If actual borrow or financing terms are unavailable, state teaching assumptions and stress financing withdrawal. Store displayed rates separately from final settlement rates.
Signal
Compare conservative net Carry with capital tied up, not a single annualized rate. Confirm executable size on both legs before entering. If one leg fails, stop expanding unhedged risk. Directional neutrality still requires recording notional exposure, basis sensitivity, and venue limits.
Backtest
Account period by period for Funding, financing, exit spreads, and fees. Do not count Funding again under Carry. Widening basis before delivery may strain short-leg margin even when maturity logic remains valid. Use venue-specific cash ledgers to test survival to exit; aggregate profitability must not offset a venue's inability to meet obligations.
Falsification
Test Funding reversals, early loan recall, collateral haircuts, and unavailable venue transfers separately. Reject a strategy profitable only with unlimited financing or magically moving margin. If implementation needs a real funding-state model, complete it first; a result table cannot replace it.
Exercise and project acceptance
Draw a spot/futures cash-flow timeline with entry, holding, margin calls, and exit. For each step list payer, currency, time, available balance, and maximum requirement. Decompose accounts according to the attribution definitions. Acceptance requires explaining a path that profits at maturity but fails beforehand, not merely final PnL.
Place the complete object and approvals in the capstone handbook.