What Is a Basis Trade? Spot vs Futures Basis in Crypto
A basis trade buys spot and sells futures, or the reverse, to capture the gap as it converges. Learn how to calculate and annualize basis, with examples.
Updated
A basis trade is a position that buys an asset in one market and sells it in another, usually spot and futures, to capture the price gap between them, called the basis. The most common version buys spot and shorts a future trading at a premium. Because a dated future converges to spot at expiry, the premium turns into profit if the position is held to settlement.
Key takeaways
- Basis = futures price − spot price, usually quoted as a percentage of spot.
- Annualized basis = basis % × 365 ÷ days to expiry, a simple rate that lets you compare contracts.
- The standard trade is long spot, short future, also called a cash-and-carry trade.
- Price moves on the two legs mostly cancel out, so the return comes from convergence, not direction.
- With perps, the return comes from funding payments instead of a fixed basis.
- Fees, margin, liquidation risk and exchange risk decide whether the trade is worth it.
What is the basis?
The basis is the difference between a futures price and the spot price of the same asset:
| Measure | Formula |
|---|---|
| Basis | Futures price − spot price |
| Basis % | Basis ÷ spot price |
| Annualized basis | Basis % × 365 ÷ days to expiry |
When futures trade above spot, the basis is positive and the market is in contango. When they trade below, it is negative and the market is in backwardation. See contango and backwardation for what drives each.
How a basis trade works
The classic basis trade has two legs of equal size:
- Buy spot: purchase the asset on a spot market.
- Short the future: sell the same quantity of a dated future that trades at a premium.
If the price rises, the spot leg gains and the short future loses about the same amount. If the price falls, the reverse happens. What stays is the basis you locked in at entry. At expiry, the future settles at the spot index, the basis goes to zero, and your combined position has earned the starting premium, minus costs.
Because the trade has almost no exposure to price direction, it is a form of delta-neutral trading.
Worked example
Assume ETH spot is $3,000 and a future expiring in 120 days trades at $3,054. You trade 10 ETH on each leg.
Basis at entry:
- Basis = $3,054 − $3,000 = $54 per ETH
- Basis % = $54 ÷ $3,000 = 1.8%
- Annualized = 1.8% × 365 ÷ 120 ≈ 5.5%
- Gross profit if held to expiry = 10 × $54 = $540
At expiry, assume ETH settles at $2,700:
| Leg | Entry | Exit | PnL |
|---|---|---|---|
| Long 10 ETH spot | $3,000 | $2,700 | −$3,000 |
| Short 10 ETH future | $3,054 | $2,700 | +$3,540 |
| Total | +$540 |
The result is the same $540 whatever the settlement price, because both legs end at the same price. Now subtract costs. Assume a combined 0.10% in trading fees on the notional of each leg, for entry only:
- Fees = 0.10% × ($30,000 + $30,540) ≈ $61
- Net profit ≈ $540 − $61 = $479
If you also pay fees to sell the spot at expiry, the net is lower. Run your own inputs in the basis calculator.
Return on capital
The annualized basis is measured against spot notional, but your capital covers more than that. You need the full spot purchase plus margin for the short future. In the example, assume you post $6,000 of margin (5x effective) for the future:
- Capital used = $30,000 + $6,000 = $36,000
- Return on capital = $479 ÷ $36,000 ≈ 1.33% over 120 days
- Annualized ≈ 1.33% × 365 ÷ 120 ≈ 4.0%
More margin lowers liquidation risk but also lowers the return on capital. Less margin raises it but increases the chance that a sharp rally liquidates the short before expiry, even though the spot leg is up.
Types of basis trade
| Type | Legs | Return source | Return fixed? |
|---|---|---|---|
| Cash-and-carry | Long spot, short dated future | Positive basis converging | Yes, if held to expiry |
| Reverse cash-and-carry | Short spot, long dated future | Negative basis converging | Yes, minus borrow cost |
| Perp basis (funding carry) | Long spot, short perp | Funding payments to shorts | No, funding changes |
| Calendar spread | Short one expiry, long another | Change in the gap between them | No |
The reverse version needs borrowed coins, which adds a borrow fee. See reverse cash-and-carry. The perp version never converges on a date, so it earns whatever funding rate the market pays.
Risks and common mistakes
- Closing early at a worse basis. The basis is only guaranteed at expiry. If you exit early and the basis has widened, you can realize a loss.
- Margin and liquidation on the futures leg. Spot gains on one exchange do not protect a short future on another from liquidation.
- Exchange and custody risk. Both legs are exposed to the venues holding your funds.
- Ignoring the full cost stack. Entry fees, exit fees, slippage, withdrawal fees and the cost of capital all come out of the basis.
- Comparing unannualized numbers. A 1.8% basis over 120 days and a 1.0% basis over 30 days are very different annual rates.
How ArbTide helps
ArbTide's cash-and-carry strategy page walks through the classic basis trade. For the perp version, the live funding rates page shows current funding normalized to APR.
Frequently asked questions
- What is a basis trade in crypto?
- A basis trade takes opposite positions in spot and futures on the same asset to profit from the gap between their prices. The most common version buys spot and shorts a future trading at a premium, then earns that premium as the future converges to spot.
- How do you calculate annualized basis?
- Divide the basis (futures price minus spot price) by the spot price to get a percentage, then multiply by 365 and divide by the number of days to expiry. For example, a 1.8% basis with 120 days left is 1.8% × 365 ÷ 120 ≈ 5.5% per year.
- Is a basis trade risk-free?
- No. Price exposure is hedged, but the trade still carries exchange risk, margin and liquidation risk on the futures leg, execution costs and the risk that the basis widens before expiry if you need to close early.
- What is the difference between a basis trade and a cash-and-carry trade?
- A cash-and-carry trade is the most common type of basis trade: buy spot, short the future. Basis trade is the broader term and also covers the reverse version, basis trades on perpetuals that earn funding, and trades between two futures contracts.
- Can you do a basis trade with perpetual futures?
- Yes. With a perp, there is no expiry to force convergence, so the return comes from funding payments instead of a locked-in basis. The return is not fixed and can turn negative if funding flips.