How Is the Basis Calculated for a Traditional Cryptocurrency Futures Contract?
The basis is calculated as the difference between the price of the futures contract and the spot price of the underlying cryptocurrency. Basis = Futures Price – Spot Price.
The basis can be positive (contango) or negative (backwardation). As the contract approaches expiration, the basis is expected to converge to zero, as the futures price must equal the spot price at settlement.
Glossar
Cryptocurrency Futures
Leverage ⎊ Cryptocurrency futures contracts represent agreements to buy or sell a specified quantity of a cryptocurrency at a predetermined price on a future date, functioning as a derivative instrument.
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.
Cost of Carry Influence
Arbitrage ⎊ Cost of carry influence, within cryptocurrency derivatives, represents the profitability potential derived from the differential in funding rates and the underlying spot market price, impacting strategies like basis trading and fixed-float arbitrage.
Basis Trade
Mechanism ⎊ A Basis Trade, within cryptocurrency derivatives, represents a strategy exploiting discrepancies between spot and futures contract prices, aiming for risk-neutral profit.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Basis
Foundation ⎊ The basis, within cryptocurrency derivatives, represents the differential between the spot price of an underlying asset and the price of its corresponding futures contract.