Definition
Basis is a trading metric that represents the difference between the price of a derivative instrument and the price of its underlying asset at a given time. In crypto markets, it typically refers to the spread between futures prices and the spot price of the same cryptocurrency. A positive basis indicates that the derivative trades at a premium to the underlying, while a negative basis indicates a discount. The size and direction of the basis reflect how market participants are pricing future conditions relative to current market levels.
As a metric, basis is central to understanding relationships between spot and derivatives markets and is closely linked to concepts such as basis trade and basis risk. It is usually quoted in absolute price terms or as a percentage of the underlying asset’s spot price. Changes in basis over time provide information about shifts in market expectations, funding conditions, and relative pricing between markets, without describing any specific trading strategy.
Context and Usage
In trading contexts, basis is used to quantify how far a derivative’s price deviates from the underlying asset’s current market price. It serves as a reference point for evaluating relative value between spot and derivatives markets, and for assessing how tightly or loosely those markets are aligned. Persistent or extreme basis levels can signal structural conditions in the market, such as strong demand for leverage or hedging.
The metric is also a foundational element in the concepts of basis trade and basis risk, where the focus is on the behavior of this price difference over time. While basis itself is purely descriptive, it is widely monitored by traders, market makers, and risk managers as an indicator of market sentiment and pricing dynamics between related instruments.