Basis

Basis is the difference between a futures price and the spot price of the asset. Positive basis means the future is above spot; negative basis means it is below.

How it works

Basis = futures price − spot price. It is often shown as a percentage and annualized so contracts with different expiries can be compared. As expiry approaches, basis heads toward zero, because the future settles against spot.

A high positive basis signals demand for leveraged longs and an optimistic market. Negative basis shows up in panics and when shorts are in demand. For perpetual futures the equivalent is the gap with the index price, which shows up in funding.

Basis drives the cash-and-carry trade: buy the asset on spot and sell the future. Holding both to expiry locks in the basis whatever the price does. The risks are fees, running out of margin on the futures leg in a strong rally, and the exchange itself.

Example with numbers

BTC spot is $60,000 and a future expiring in 90 days is $61,500. Basis is $1,500, or 2.5%. Annualized: 2.5% × 365 / 90 ≈ 10% a year. With 1 day to go and spot at $70,000, the future will be around $70,000–70,050 and the basis will be almost gone.

Common mistake

The mistake is treating a basis trade as risk-free and opening the short futures leg with high leverage. In a strong rally the futures position can be liquidated before expiry and the strategy falls apart. Keep enough margin on the futures leg and count every fee.

Questions and answers

What is basis in simple terms?

It is the gap between a futures price and the asset's spot price right now. It shows how much more or less the future costs.

How do you calculate annualized basis?

Divide the basis by the spot price, multiply by 365 and divide by the days to expiry. That lets you compare futures with different expiries.

What does negative basis mean?

The future trades below spot. That happens when the market is fearful or demand for shorts is strong.

Basis

How it works

Questions and answers

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