How Does High Market Volatility Affect the Basis?
High market volatility typically causes the basis to widen, meaning the difference between the perpetual contract price and the spot price increases. During rapid price movements, especially sharp rallies, the futures contract often trades at a higher premium (positive basis) due to the increased demand for leveraged long positions.
Conversely, sharp sell-offs can lead to a wider discount (negative basis).
Glossar
Market Volatility
Dispersion ⎊ Market volatility within cryptocurrency, options, and derivatives contexts represents the magnitude of price fluctuations over a defined period, quantified typically by standard deviation or variance of logarithmic returns.
Increased Demand
Driver ⎊ Increased demand in cryptocurrency, options trading, and financial derivatives is typically driven by shifts in market sentiment, macroeconomic factors, or the introduction of new, highly anticipated financial products.
Spot Price
Valuation ⎊ The spot price in cryptocurrency, options, and derivatives represents the current market-clearing price for immediate delivery of the underlying asset, functioning as a fundamental benchmark for pricing more complex instruments.
High Market Volatility
Metric ⎊ High market volatility is a quantitative metric representing the rapid and significant fluctuation of an asset's price over a specified period, typically measured by statistical dispersion methods like standard deviation or implied volatility from options pricing.
Perpetual Contract Price
Price ⎊ The perpetual contract price, within cryptocurrency derivatives, represents the spot price of the underlying asset, dynamically adjusted through an auction mechanism to maintain funding rates near zero.
Sharp Sell-Offs
Trigger ⎊ Sharp Sell-Offs represent rapid, substantial declines in asset prices, frequently triggered by unexpected negative news, large-scale institutional selling, or a sudden, widespread loss of market confidence.