Basis (Futures Premium/Discount)

Basis (also called "futures premium" or "futures discount") is the price difference between a futures contract and the current spot price of the underlying asset.

Formula

Basis = Futures Price - Spot Price

• Positive basis (contango): Futures price > Spot price (premium) — common in bullish markets
• Negative basis (backwardation): Futures price < Spot price (discount) — common in bearish markets
• Zero basis: Futures price = Spot price (convergence at expiry)

Why Basis Exists

The basis reflects: 1. Cost of carry: Interest costs of holding the position until expiry 2. Market sentiment: Bullish = premium, bearish = discount 3. Time to expiry: Basis converges to zero as expiry approaches

Basis Trading

Traders can profit from basis through:

• Cash and carry: Buy spot + sell futures = collect premium
• Reverse cash and carry: Short spot + buy futures = collect discount
• These are relatively low-risk "arbitrage" strategies

Basis in Perpetual Futures

For perpetual contracts, the "basis" is kept minimal by the funding rate mechanism. However, during extreme sentiment, perp prices can still deviate from spot, leading to very high funding rates.

Annualized Basis Rates: