Futures basis
Also called: basis · futures premium · contango and backwardation
Definition
The futures basis is the difference between a futures contract's price and the spot price of the same asset, often expressed as an annualised percentage.
How futures basis works
Basis = futures price − spot price. When futures trade above spot, the basis is positive, a state called contango. When they trade below, it is negative, called backwardation. In crypto, dated futures have usually traded at a premium, reflecting demand for leveraged long exposure and the cost of capital.
To compare contracts with different expiry dates, traders annualise the basis: divide the percentage premium by the days to expiry and multiply by 365. A 2% premium on a 30-day contract is far higher annualised than 2% on a 180-day one.
The basis shrinks toward zero as a delivery contract approaches expiry, because it settles at the index price. That is the idea behind the cash-and-carry or basis trade: buy spot, sell the future, and earn the premium. Perpetual futures have no expiry, so their premium is handled by the funding rate instead. A very high basis also signals heavy leveraged demand.
Example
Suppose BTC spot is 60,000 USDT and the contract expiring in 60 days trades at 60,900. The basis is 900 USDT, or 1.5% of spot. Annualised, that is 1.5% × 365 ÷ 60 ≈ 9.1% a year. A trader who buys 1 BTC spot and sells 1 BTC of that future locks in roughly 900 USDT at expiry, minus fees, whatever happens to the price.
Common mistakes
- Comparing raw basis between contracts with different expiries instead of annualising it.
- Calling a basis trade risk-free while ignoring exchange risk and margin needs on the short future.
- Confusing the basis of dated futures with the funding rate of perpetuals.
Learn and practise
FAQ
What is contango in crypto futures?
Contango means futures trade above spot, a positive basis. It is the usual state in crypto when demand for leveraged longs is healthy.
What does a negative basis mean?
Futures trade below spot, called backwardation. It often appears in fearful markets or when demand to short is strong.