Futures Basis Explained
Futures basis is the difference between the futures price and the spot price.
Basis = Futures price - Spot priceIf futures trade above spot, the basis is positive. If futures trade below spot, the basis is negative.
Key Takeaways
- Basis shows the relationship between futures and spot.
- Positive basis can indicate premium.
- Negative basis can indicate discount.
- Basis should be read with open interest, trend, rollover, and expiry context.
- Basis is not a standalone trading signal.
Why Basis Matters
Index futures can trade at a premium or discount because of interest rates, dividends, demand for leverage, hedging pressure, and expiry proximity. A widening or narrowing basis can give useful context about positioning.
Premium And Discount
| Condition | Meaning |
|---|---|
| Futures above spot | Positive basis or premium |
| Futures below spot | Negative basis or discount |
| Basis shrinking | Premium narrowing or discount changing |
| Basis widening | Stronger separation between futures and spot |
How To Use Basis Carefully
In daily reports, basis can help answer:
- Are index futures trading at a meaningful premium?
- Is the premium expanding or narrowing?
- Is the futures move confirming the spot index?
- Is the basis unusual near expiry?
Common Mistakes
- Treating positive basis as automatically bullish.
- Ignoring expiry date.
- Ignoring OI and rollover context.
- Comparing basis without checking contract month.
Disclaimer
This content is for educational and informational purposes only. It is not investment advice, trading advice, or a buy/sell recommendation. Please consult a registered financial advisor before making any financial decision.
Disclaimer
Educational and informational purposes only. Not investment advice. Consult a registered financial advisor before making trading or investment decisions.