What Is the Difference between Positive and Negative Basis (Contango and Backwardation)?
A positive basis, known as contango, occurs when the futures price is higher than the spot price. This is the typical scenario where the futures price reflects the cost of carry.
A negative basis, known as backwardation, occurs when the futures price is lower than the spot price. Backwardation suggests market participants expect the spot price to fall in the future or that there is a high demand for the spot asset immediately.
Glossar
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.
Negative Basis
Basis ⎊ The negative basis in cryptocurrency derivatives, particularly options, signifies a condition where the futures price of an asset is lower than its spot price.
Backwardation in Crypto
Basis ⎊ The phenomenon of backwardation in crypto derivatives, specifically options, manifests as a condition where futures or perpetual contracts trade at a discount to the spot price.
Futures Price
Derivatives ⎊ The futures price, within cryptocurrency and financial derivatives, represents the contractual agreement to buy or sell an asset at a predetermined price on a specified future date.