Define “Basis” in the Context of Futures Trading.
Basis is the difference between the current spot price of an underlying asset and the price of its corresponding futures contract. Mathematically, Basis = Spot Price – Futures Price.
The basis can be positive (contango) or negative (backwardation). It reflects the cost of carry, including storage, interest, and insurance, for physical assets, or market expectations for financial assets like cryptocurrencies.
