In the world of cryptocurrency trading, coin-margined futures contracts have become one of the most popular instruments for investors seeking exposure to digital assets. Unlike USDT-margined contracts, coin-margined contracts require traders to use the underlying cryptocurrency—such as BTC or ETH—as collateral. This structure introduces unique dynamics, especially when combined with strategies like 1x short positions aimed at collecting funding fees.
But what exactly does "1x short in coin-margined contracts to earn funding fees" mean? Let’s break it down in simple terms and explore how this strategy works, its risks, and whether it can serve as an effective hedging tool.
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Understanding Coin-Margined Contracts
Before diving into the strategy, it's essential to understand coin-margined contracts. In this type of futures contract:
- The margin (collateral) and profit/loss (PnL) are denominated in the base cryptocurrency, not a stablecoin.
- For example, in a BTC/USD coin-margined contract, you deposit BTC as margin, and your gains or losses are also calculated in BTC.
This is different from USDT-margined contracts, where everything is settled in stablecoins, making PnL easier to track in fiat-equivalent terms. However, coin-margined contracts allow traders to maintain crypto exposure while managing directional bets.
What Is a 1x Short Position?
A 1x short means opening a short position with 1x leverage—essentially selling an amount of cryptocurrency equal to the value of your collateral. Since there's no borrowed capital involved, your risk is limited to your initial margin (though liquidation is still possible under extreme price moves).
For instance:
- If you hold 1 BTC and open a 1x short on a BTC perpetual contract, you’re effectively betting that Bitcoin’s price will stay flat or decline slightly.
- Your position size matches your collateral, so you're not amplifying gains or losses through leverage.
While 1x may seem conservative compared to high-leverage trades (like 10x or 50x), it plays a crucial role in advanced strategies—especially those involving funding fees.
What Are Funding Fees?
Funding fees are periodic payments exchanged between long and short traders in perpetual futures markets. These fees exist to anchor the futures price to the spot market price.
Here’s how they work:
- When the perpetual contract trades above the spot price (a state called contango), longs pay shorts.
- When it trades below the spot price (backwardation), shorts pay longs.
These payments typically occur every 8 hours and are based on a percentage rate determined by market conditions.
👉 Learn how funding rates can turn volatility into opportunity
So, What Does “Earning Funding Fees via 1x Short” Mean?
Now we get to the core concept: going 1x short in a coin-margined perpetual contract to collect funding fees.
This strategy involves:
- Holding a base cryptocurrency (e.g., BTC).
- Opening a 1x short position in the corresponding coin-margined perpetual market.
- Collecting funding payments whenever longs are paying shorts (which happens frequently in bullish markets).
Because the position is only 1x, the trader isn’t making a strong directional bet. Instead, they’re leveraging market structure:
- They still own the physical asset (or have equivalent exposure).
- But by shorting the same amount synthetically, they neutralize price risk.
- Meanwhile, they collect funding fees—essentially earning yield on their holdings.
This is often referred to as "funding rate harvesting" or "shorting to collect funding."
Example Scenario
Imagine you own 1 BTC. The market is bullish, and BTC perpetual contracts are trading at a premium. Funding rate: 0.01% per epoch (8 hours).
You:
- Deposit 1 BTC as margin.
- Open a 1x short position on BTC/USD perpetual (coin-margined).
- Now you’re market-neutral: price changes won’t significantly affect your BTC-denominated net worth.
- Every 8 hours, you receive funding payments from longs.
Over time, these small payments accumulate—potentially generating 5–10% annualized yield in BTC terms during sustained bull markets.
Is a 1x Short Position a Hedging Strategy?
Yes—this can be an effective hedging mechanism, depending on your goals.
While not all 1x shorts are hedges, this specific setup functions as a market-neutral hedge:
1. Portfolio Risk Reduction
If you’re long BTC but worried about systemic risks (e.g., macroeconomic shifts, exchange hacks), opening a 1x short:
- Offsets price volatility.
- Preserves your crypto balance.
- Lets you earn income while waiting out uncertainty.
2. Behavioral Hedge
Sometimes traders hesitate to sell their crypto due to emotional attachment or tax implications. A 1x short allows them to:
- Stay "long" in spirit (still holding coins).
- Be economically neutral or even profitable if prices drop.
- Benefit from funding inflows.
However, it’s important to note: this only hedges price risk. It doesn’t protect against exchange failure, wallet loss, or regulatory changes.
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Frequently Asked Questions (FAQ)
Q: Can I really make money just by holding a 1x short?
Yes—but only when funding rates are positive (longs pay shorts). In bullish or FOMO-driven markets, this can happen consistently. However, during bear markets, funding often turns negative, meaning you’d pay longs instead.
Q: Do I need leverage to collect funding fees?
No. Leverage isn’t required. A 1x short uses full collateral and avoids amplified risk. In fact, using higher leverage increases liquidation risk and may not be suitable for pure funding collection.
Q: Is this strategy safe?
It’s relatively low-risk compared to leveraged speculation, but not risk-free:
- Price gaps or flash crashes can trigger liquidations.
- Negative funding periods mean you pay out.
- Exchange downtime or technical issues can disrupt positions.
Always monitor your open positions and set appropriate risk controls.
Q: Can I do this with ETH or other coins?
Absolutely. Any major coin with active perpetual markets—like ETH, BNB, SOL—offers similar opportunities. Just ensure there’s sufficient liquidity and consistent funding rates.
Q: How often are funding fees paid?
Most exchanges, including top-tier platforms, distribute funding every 8 hours, typically at 00:00 UTC, 08:00 UTC, and 16:00 UTC.
Q: Does this count as staking or yield farming?
No. This is a derivatives-based income strategy, not staking. There’s no lock-up period, but there is counterparty and market risk.
👉 See how top traders optimize their funding fee earnings across multiple assets
Final Thoughts
The strategy of going 1x short in coin-margined contracts to collect funding fees is a sophisticated yet accessible way for crypto holders to generate passive income without selling their assets. It combines elements of hedging, market neutrality, and yield harvesting—making it particularly appealing during extended bull runs.
However, success depends on understanding market cycles, monitoring funding trends, and choosing reliable trading venues. While it won’t replace traditional investment strategies, it adds a powerful tool to any trader’s arsenal.
As always, proceed with caution, start small, and never risk more than you can afford to lose in volatile crypto markets.