What Is the Primary Risk Associated with a Basis Trade?

The primary risk associated with a basis trade is liquidation risk on the leveraged futures leg. Although the trade is theoretically market-neutral, a sudden, sharp move in the asset's price can cause the margin of the short or long futures position to drop below the maintenance margin.

This premature liquidation forces the trader to close the position at a loss, breaking the hedge and potentially eliminating the expected profit from the funding rate.