What is basis?

The difference between a derivative's price and the spot price of the asset it tracks, usually quoted as a percentage of spot.

A futures contract trading above spot has positive basis; one trading below has negative basis. Basis is where funding rates come from on perpetuals and where the roll cost comes from on dated futures, and it narrows toward zero as a dated contract approaches expiry, because at settlement the two prices must meet.

Traders who buy spot and sell a future against it are harvesting the basis rather than betting on direction. That trade is one of the main reasons large amounts of spot get bought and held on exchanges, which is why the number matters to people who never trade derivatives.

How it works

Basis is spot subtracted from the futures price, expressed as a percentage of spot. It is usually annualized so contracts of different lengths can be compared.

For a dated contract, basis must converge to zero at expiry, because settlement is against a spot index. That guaranteed convergence is what makes it harvestable: a trader who is long spot and short the future locks the gap at the outset and collects it regardless of which way the price goes, subject to margin and funding costs.

For a perpetuals contract there is no expiry, so the exchange enforces convergence with the funding rate, a periodic payment between longs and shorts sized from how far the contract sits from the index.

Positive basis is contango and is the usual state, reflecting the cost of capital and demand for leveraged long exposure. Negative basis is backwardation and shows up in stress or heavy hedging.

The basis is not risk-free income. The spot leg and the futures leg sit in different places, margin can be called on the short leg during a sharp rally, and the trade carries venue and settlement risk.

Example

Illustrative: spot is $60,000 and the three-month future is $61,800. Basis is $1,800, or 3% over three months, roughly 12% annualized. A trader buys $60,000 of spot and sells one future. At expiry the two converge, so whether the price ends at $40,000 or $90,000, the combined position is worth about $61,800, and the $1,800 is the return before fees, funding, and the cost of capital. Figures are illustrative.

Why it matters when you buy

Basis explains behavior you can see in the spot market. When it is wide, institutions buy spot to sell futures against it, which adds real buying that has nothing to do with a view on price. When it collapses, that buying stops. If you hold a futures-based product rather than the asset itself, basis is a direct cost or credit at every roll. Compare holding the asset with holding a fund at the guide on spot Bitcoin funds versus buying Bitcoin.

Related terms

• contango — positive basis, the usual shape
• backwardation — negative basis
• funding rate — how perpetuals enforce convergence
• futures — the dated contracts basis is measured on
• delta neutral — the position shape a basis trade takes
• open interest — the size of positioning behind the number

Questions

Is a basis trade risk-free?

No. Convergence is reliable, but the trade requires margin on the short leg, so a sharp rally can force a call even though the combined position is fine. Venue failure and withdrawal freezes are separate risks.

Why is crypto basis usually positive?

Because demand for leveraged long exposure exceeds demand for leveraged short exposure most of the time, and because holding a position to a later date has a financing cost. Both push forward prices above spot.

Does basis predict price?

No. It reflects current positioning and financing conditions. Wide basis has often preceded both continued rallies and sharp reversals, and RampAtlas does not forecast prices.