Futures basis
For dated futures, basis commonly refers to the difference between the futures price and the underlying spot or index price.
A futures contract trading above spot has positive basis under this convention; one below spot has negative basis.
Basis and expiry
Dated futures converge toward their settlement reference as expiry approaches, subject to the contract specification.
Comparing raw basis across contracts with different time remaining can therefore be misleading; traders may annualize basis for comparison.
What premium can indicate
A persistent derivative premium can reflect stronger demand for derivative long exposure, while a discount can reflect pressure in the opposite direction.
It is still not a guaranteed forecast because arbitrage, hedging and market structure also influence pricing.
Common mistakes
Comparing basis without time to expiry
A one-month and six-month contract should not automatically be compared using raw percentage difference alone.
Confusing funding with basis
They are related derivatives concepts but are not the same measurement.
Assuming premium predicts direction
Premium describes relative pricing, not certainty about the next price move.
Basis can be expressed in absolute or annualized terms
A dated futures contract can trade above or below its reference spot market. The difference can be expressed directly, as a percentage, or annualized relative to the time remaining until expiry.
Annualization makes contracts with different maturities easier to compare, but it assumes a rate over the remaining period and should not be confused with a guaranteed return.
Dated futures and expiry convergence
As a deliverable or cash-settled futures contract approaches its settlement time, the futures and reference market are linked by the settlement mechanism. Basis behavior therefore differs from a perpetual contract with no normal expiry.
Before comparing products, identify whether the data describes dated futures basis or perpetual-contract premium.
Premium can reflect several market forces
Leverage demand, hedging, financing conditions, inventory constraints and market sentiment can all contribute to differences between derivative and reference prices.
A positive premium should therefore not automatically be interpreted as simple proof that price must rise, and a discount does not guarantee a decline.
Different platforms can use the words basis and premium for related but not identical calculations. Verify the exact definition before comparing values.
Key takeaways
- Basis commonly compares dated futures with spot or an index.
- Time to expiry matters when comparing futures basis.
- Perpetual premium describes relative perpetual/index pricing.
- Funding, premium and basis are related but distinct measurements.
Sources & further reading
This lesson is educational material. Market structure, exchange rules, fees, margin requirements and derivatives mechanics can differ by venue and can change over time. Verify current rules with the venue you use.