Differentiate between a ‘Strong Basis’ and a ‘Weak Basis’

A strong basis occurs when the spot price is high relative to the futures price, meaning the basis (Spot – Futures) is a large positive number or a small negative number. This typically indicates strong current demand for the physical asset.

A weak basis occurs when the spot price is low relative to the futures price, resulting in a small positive number or a large negative number. This often signals weak current demand or a high cost of carry.