# Delta-Neutral Explained "Delta-neutral" means you have no net exposure to price. Your position is designed so that if the price of the underlying asset goes up or down, it does not affect your profit or loss. The only income source is the funding rate payment. This document explains how that works mechanically, why it eliminates liquidation risk, and what can actually go wrong. ## The mechanics ### Positive funding: the live path When Hyperliquid's funding rate is **positive**, longs pay shorts. Every hour, every long position holder pays a small fee to every short position holder. The rate is typically expressed as a percentage of notional per hour. To capture this yield delta-neutrally, you run two legs simultaneously: **Leg 1 Short the perpetual**: You receive the funding payment every hour. **Leg 2 Buy the spot**: This is your hedge. You own the asset outright at spot. If the price rises by $1,000 while you are running this position: * Your short perp loses $1,000 * Your spot holding gains $1,000 * Net P\&L from price: **$0** If the price falls by $1,000: * Your short perp gains $1,000 * Your spot holding loses $1,000 * Net P\&L from price: **$0** Every hour, regardless of which direction price moved, you collect the funding payment on your short perp. That payment is your yield. ### Negative funding: on hold When the funding rate is **negative**, shorts pay longs. To capture this delta-neutrally, you flip the strategy: **Leg 1 Long the perpetual**: You receive the funding payment every hour (longs receive when funding is negative). **Leg 2 Short the spot**: This is your hedge. You need to borrow the underlying asset, sell it at current price, and buy it back later. Shorting spot requires a borrow source for the underlying asset. The original plan was a Zirodelta-deployed HyperEVM lending vault that would supply those borrows; that design was superseded by the current non-custodial Offerbook flow, which is a *user-borrows-USDC-against-ZDLT* surface, not an *Autopilot-borrows-spot-asset* surface. A different solution will be needed before the negative funding path can ship. > **Note:** The negative funding path is currently on hold. Autopilot only supports the positive funding path (short perp + long spot) today. ## Why there is no liquidation risk "No liquidation risk" is a specific technical claim. Here is exactly what it means. In a normal leveraged long position, your margin can be exhausted by a sustained price decline. When your margin falls below the maintenance requirement, you get liquidated. Your position is forcibly closed at a loss. In a delta-neutral position: * Your short perp loses value when price rises → but your spot gains the same amount → margin is automatically replenished by the increasing spot value * Your short perp gains value when price falls → but you are not levered into the falling price, you are hedged by the spot you own The perp margin loss is always offset by the spot gain (and vice versa). There is no directional margin call because there is no directional exposure. The position cannot be liquidated by price movement. Autopilot does not use leverage on either leg. Both the perp and the spot position are sized equally in notional, with no leverage multiplier applied. This eliminates the margin call scenario entirely. ## What CAN go wrong Being delta-neutral does not mean risk-free. There are real risk scenarios you should understand. ### Sustained negative funding (rate reversal) The most common risk. You opened a short perp + long spot because funding was positive (you were earning). The funding rate reverses to negative. Now you are paying the longs instead of receiving. When this happens, you are losing money on the funding payment while holding the position. If the rate stays negative long enough, your accumulated losses exceed your accumulated gains. **Mitigation:** Farm Score monitors rate conditions continuously. Autopilot can be configured to close positions automatically when the funding rate drops below a threshold. Set a stop-loss rate in the Automation tab to protect against sustained reversal. ### Spot-perp basis risk In theory, spot and perp prices move together. In practice, there can be short-term divergence. The perpetual price temporarily deviates from spot. This is called basis risk. During a delta-neutral trade, a basis divergence means the two legs do not perfectly offset for a period. In most cases this is temporary and self-correcting (the funding mechanism exists specifically to prevent persistent basis). However, during extreme market stress, basis can widen significantly before correcting. This is not a liquidation risk. It is a mark-to-market fluctuation. Your positions remain open. As long as you do not close during the divergence, you do not lock in a loss. ### Operational risk Autopilot operates through Zirodelta's backend infrastructure. If the backend is unavailable or delayed, orders may not be placed or closed in time. This is a real operational risk, particularly during periods of extreme market volatility when you most want the system to act. **Mitigation:** Zirodelta's backend runs on dedicated server infrastructure with automated reconnection. In the event of a service disruption, you can manage positions manually through the Hyperliquid native UI. Your positions are under your address, not locked in Zirodelta's systems. ### Negative-funding-path risks (on hold) When a spot-borrow source is wired up and the negative funding path ships, an additional risk class applies: spot-borrow availability. If the borrow source's health degrades (borrow demand exceeds supply, collateral value drops on the source side), Autopilot would reduce or close farming positions rather than maintain them at maximum size. This is a risk reduction mechanism, not a liquidation, but it may close positions before you intended. ## Summary of risk profile | Risk | Type | Severity | Mitigation | | ------------------------------------------------- | -------------------- | -------- | ------------------------------------------------------------------- | | Funding rate reversal | Yield erosion | Medium | Rate threshold rules via Automation | | Basis risk (temporary) | Mark-to-market | Low | Hold through divergence, do not panic-close | | Operational downtime | Execution delay | Low | Manual management via Hyperliquid native UI | | Spot-borrow availability (negative path, on hold) | Forced partial close | Medium | Path not active today; will surface when a spot-borrow source ships | > **See also:** [Autopilot Overview](/autopilot/overview.md) · [Agent Wallet](/autopilot/agent-wallet.md) · [Pro Subscription](/autopilot/pro-subscription.md) --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. 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