Is it feasible to completely hedge my positions in both the perpetual futures and spot markets to profit from the funding rate?

To perfectly hedge positions involving the perpetual futures and spot markets while profiting from the funding rate, you’d take a long (buy) position in one market and a short (sell) position in the other. This strategy is theoretically sound when perpetual futures are trading at a premium or discount to the spot price, aligning with the direction of the expected funding rate (positive or negative).

Here’s how it typically works:
Long Spot, Short Futures: If the funding rate is positive, you can buy in the spot market and short an equivalent amount in the perpetual futures market. You will pay the spot price’s current rate and sell futures at a higher rate. The funding rate will then be paid to you as the short futures position, assuming the funding is indeed positive and outweighs trading costs.
Short Spot, Long Futures: Conversely, if the funding rate is negative, short in the spot market and buy in the futures market. Here, you would collect the funding rate because your long futures position implies the market will pay you, aligning with the negative funding rate.

However, several complexities and risks are involved:
Transaction Costs: Trading fees, slippage, and the bid-ask spread can eat into profits, especially if these costs outweigh the funding rate profits.
Price Movement Risk: You must constantly rebalance to maintain an equal value in both positions, as price movements can lead to margin calls or liquidation risks in leveraged futures.
Interest Rate Costs: Capital tied in the spot market could incur opportunity costs or additional funding costs, which may affect the profitability of the hedge.
Exchange Reliability and Monitoring: Exchanges might have differing rates or sudden operational cases like downtime or forced liquidation during high volatility.
Regulatory Concerns: Ensure that leveraging perpetual futures is compliant with local financial regulations as derivatives usage varies by region.

Therefore, while theoretically viable, practical execution requires skillful management of costs and risks to ensure that the strategy remains profitable when factoring in external costs and market volatility.