How Does the Concept of "Basis" Relate to the Risk of a Short Squeeze in Futures Markets? ▴ Learn

How Does the Concept of “Basis” Relate to the Risk of a Short Squeeze in Futures Markets?

Basis is the difference between the futures price and the spot (cash) price of the underlying asset. A negative basis (futures price lower than spot) suggests short sellers are dominant.

A sudden, sharp move to a positive basis (futures price higher than spot) can signal a short squeeze, as demand for futures outstrips the spot market, forcing short sellers to pay a premium to close.

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