What Is ‘Basis Risk’ in the Context of Futures and Mark Price?

Basis risk is the risk that the price of a futures contract will not move in perfect correlation with the price of the underlying asset (the spot price). The difference between the futures price and the spot price is called the 'basis'.

If the exchange's Mark Price deviates significantly from the true market price, it can lead to basis risk for traders, potentially causing premature or unfair liquidations. This risk is inherent in derivatives trading.