Basis is the difference between a futures price and the related spot price. Financing, dividends, time to expiry, supply and demand, and market conditions can influence it. The basis normally converges toward zero as a cash-settled contract approaches expiry, subject to market mechanics.
Calculate and label the basis
Subtract spot from futures using comparable timestamps. A positive result is commonly described as a futures premium and a negative result as a discount, but data timing and liquidity should be checked.
Understand carrying inputs
Financing and expected distributions can affect a theoretical fair relationship. Actual market pricing can differ because participants have different constraints and demand for exposure.
- Interest or financing
- Expected dividends
- Time remaining
- Market demand and liquidity
Watch convergence and rollover
As expiry approaches, the current contract's price aligns with settlement mechanics. Moving to a later expiry resets the basis and may create a rollover debit or credit.
Use synchronised data
Spot and futures can move quickly, so basis should use prices captured at the same time. Delayed cash data compared with a live futures quote can produce a difference that looks meaningful but is only a timestamp error.
For a stock future, consider expected dividends and corporate actions during the contract period. For an index, verify the relevant product and settlement details through official exchange material.
- Matched timestamps
- Correct contract
- Days to expiry
- Known distributions or actions
Track basis as a series, not one number
Observe how basis behaves across normal sessions, events and the approach to expiry. A series provides context for whether the current relationship is unusual for that instrument and period.
Keep directional research separate. Basis can change because spot moves, futures move or both, and a premium or discount does not supply a complete market thesis.
- Historical comparison window
- Event context
- Convergence path
- Separate price scenario