What Is ‘Basis Risk’ in Perpetual Futures?

Basis risk is the risk that the price of the perpetual futures contract will diverge from the price of its underlying index (spot price). This divergence, known as the 'basis,' is usually small and managed by the funding rate mechanism.

However, if the funding rate fails to keep the two prices aligned, or if the oracle's index price is faulty, the basis can widen significantly, exposing traders to unexpected losses.