What is Basis?
Basis is the difference between a derivative contract’s price and the spot price of its underlying asset. On perpetual futures it measures how far the perp trades above or below the spot index, and it is the force the funding rate exists to compress.
Basis is the price gap between a futures or perpetual contract and the spot value of the same asset. It is normally quoted in absolute terms (perp price minus index price) or as a percentage of the index. A positive basis means the perp trades richer than spot — the market leans long; a negative basis means the perp trades cheaper than spot — the market leans short.
On a traditional dated future, basis mechanically decays to zero as the contract nears expiry, because at settlement the future must equal spot. Perpetual futures never expire, so there is no settlement date to pull the two prices together. Instead exchanges use the funding rate: when the perp trades above index (positive basis), longs pay shorts, which discourages new longs and nudges the perp back toward spot. When the perp trades below index (negative basis), shorts pay longs. Funding is therefore the engineered substitute for the natural convergence that expiry gives dated futures.
For a funding-rate arbitrageur, basis and funding are two views of the same imbalance. Sustained positive basis on a venue tends to coincide with positive funding, meaning a short-perp / long-spot (or short-perp on one venue, long-perp on another) delta-neutral position harvests that funding as carry. The trader is not betting on price direction — they are getting paid to supply the liquidity that closes the basis.
Basis also differs across exchanges, and that cross-venue basis spread is the raw material of the screener. If BTC perp sits at a richer basis on Exchange A than on Exchange B, funding on A is likely higher, and the pair A-short / B-long can capture the differential. What looks like free carry on paper still has to survive real execution: the entry and exit both cross the orderbook (slippage) and pay taker fees, so a thin basis edge can be fully eaten by costs — which is exactly what a realistic backtester subtracts before showing net APR.
The practical caveat is that basis is not static. It widens during momentum and squeezes, and can flip sign fast. A position opened to harvest positive funding can see the basis collapse or invert, turning carry income into a payment. This is why arbitrageurs watch basis stability, not just its current level, before sizing a delta-neutral trade.
Basis (absolute and percentage)
Basis = Perp Price − Index (Spot) Price Basis % = (Perp Price − Index Price) / Index Price × 100
Positive basis → perp richer than spot (typically positive funding, longs pay shorts). Negative basis → perp cheaper than spot (shorts pay longs).
BTC perpetual basis → funding carry
- •Spot / index BTC = $60,000
- •BTC perp mark price = $60,090
- •Basis = 60,090 − 60,000 = +$90
- •Basis % = 90 / 60,000 × 100 = +0.15%
- •Perp is richer than spot → longs pay shorts.
- •Say this coincides with funding of +0.01% per 8h interval.
- •Annualized funding = 0.01% × 3 × 365 = 0.01% × 1095 = 10.95% APR.
- •A delta-neutral short-perp / long-spot position collects ~10.95% APR carry
- •gross — before slippage and taker fees on entry and exit are subtracted.
Dated futures basis vs perpetual basis
| Property | Dated future | Perpetual future |
|---|---|---|
| Convergence mechanism | Expiry settlement forces price = spot | No expiry — funding payments compress basis |
| Basis over time | Decays to zero at expiry | Persists; oscillates around zero |
| Who closes the gap | Settlement date | Longs/shorts via periodic funding |
| Arb income source | Cash-and-carry to expiry | Ongoing funding carry while position is held |
FAQ
What is basis in perpetual futures?
Basis is the difference between the perpetual contract’s price and the spot index price of the underlying asset. A positive basis means the perp trades above spot; a negative basis means it trades below. Because perps never expire, funding payments — not settlement — keep the basis close to zero.
How does basis relate to the funding rate?
They track the same imbalance. When basis is positive (perp above spot), funding is typically positive and longs pay shorts to discourage the premium. When basis is negative, funding turns negative and shorts pay longs. Funding is the mechanism that compresses basis in the absence of an expiry date.
Why does basis matter for funding-rate arbitrage?
Sustained basis signals sustained funding, which is the carry a delta-neutral trade harvests. Cross-exchange basis differences reveal where funding spreads are largest. But basis can shrink, invert, or be eaten by slippage and fees, so arbitrageurs weigh basis stability and net-of-cost APR, not just the headline rate.
Can basis be negative?
Yes. A negative basis means the perpetual trades below the spot index, usually reflecting bearish or heavily-short positioning. In that regime funding is typically negative, so shorts pay longs — and a long-perp delta-neutral position can be the one that earns the carry.
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