How Does the ‘Basis’ Relate to the Price Difference between a Futures Contract and the Spot Price?

The basis is the difference between the price of a futures contract and the price of the underlying spot asset. A positive basis (contango) means the futures price is higher than the spot price.

A negative basis (backwardation) means the futures price is lower than the spot price. The basis tends to narrow as the futures contract approaches its expiration date, eventually converging to zero at settlement.