Basis
Basis is the difference between the price of a futures contract and the current spot price of the underlying asset.
✦ Key Insight
Basis helps traders understand derivatives-market expectations and pricing differences between spot and futures. A positive basis means futures trade above spot. A negative basis means futures trade below spot.
✕ Common Misconceptions
Confusing basis with funding rate
Ignoring contract expiry
Treating positive basis as guaranteed bullishness
Comparing contracts with different maturities
Ignoring fees when trading basis strategies
Detailed Explanation
How It Works
Suppose Bitcoin trades at $100,000 in the spot market and a three-month futures contract trades at $103,000.
The basis is $3,000, or approximately 3%.
Basis can be influenced by:
Interest rates
Market sentiment
Demand for leverage
Time until expiry
Borrowing costs
Institutional positioning
For dated futures, basis normally converges toward zero as the contract approaches expiry.
FAQs
Does basis exist in perpetual futures?
Yes, but it behaves differently because perpetuals do not expire.
Does a positive basis mean price will rise?
No.
Why does basis disappear at expiry?
Futures settle toward the underlying reference price.
In Practice
Dig Deeper
Funding Rate
The funding rate is a periodic payment exchanged between long and short positions in perpetual futures markets, designed to keep the perpetual's price tethered to the underlying spot price. When longs pay shorts the rate is positive; when shorts pay longs it is negative.
Contango
Contango is a market condition where futures contracts trade at a higher price than the current spot price.