Skip to main content

What Is the “Basis” in Futures Trading, and How Does Arbitrage Affect It?

The basis is the difference between the price of the futures contract and the price of the underlying asset (the spot price or index). Arbitrage activity, specifically index arbitrage, drives the futures price toward the spot price, narrowing the basis.

This action ensures that the futures contract price accurately reflects the underlying asset's value.

What Is the Difference between Mark Price and Index Price in Derivatives Trading?
How Does a Shorter Time to Expiration Affect the Premium Difference between ITM and OTM Options?
Explain the Concept of “Basis Trading” in Relation to Mark Price and Spot Price Divergence
What Is the Relationship between the VIX Index and Implied Volatility?