What Is a Basis Trade?
A basis trade (also called "cash and carry") is a market-neutral arbitrage strategy that profits from the price difference between an asset's spot market price and its futures contract price. The trader buys spot and simultaneously sells an equivalent futures position, locking in the "basis" as profit.
How the Basis Trade Works
When futures trade in contango (above spot), a trader can:
- Buy 1 BTC on the spot market at $65,000
- Sell 1 BTC futures contract expiring in 3 months at $67,000
- Hold both positions until expiry, earning the $2,000 basis (~3% in 3 months, ~12% annualized)
The trade is market-neutral because long spot and short futures offset each other regardless of price direction.
Why It Matters for Traders
The basis trade is one of the lowest-risk strategies in crypto, offering yields that often exceed traditional fixed income. Institutional players and market makers frequently run this trade, and its prevalence directly affects funding rates and futures curve shape. Understanding basis dynamics helps traders identify when contango is abnormally wide (opportunities) or compressed (risk-off sentiment).
How It Works on CEX Perps
On centralized perpetual futures venues, basis trade shows up in the position panel, the funding timer, or the liquidation engine rather than as a separate product. Traders usually check it next to mark price, margin mode, and open interest so they do not size a trade from last price alone.
Example numbers only (not a live quote): if you hold a $10,000 notional long with 5x leverage, your initial margin is about $2,000. A move against you of roughly 20% of that notional can push the position near maintenance margin depending on the venue formula. Always read the venue's own liquidation rule before you size.
Formula and Worked Example
Use this only as a labeled example. It is not a live market print.
- Notional = coin size × mark price.
- Initial margin ≈ notional ÷ leverage.
- Distance to liquidation depends on maintenance margin, fees, and whether you use cross or isolated margin.
Example: 0.1 BTC long, mark $60,000, leverage 10x → notional $6,000, initial margin about $600. If maintenance margin is near 0.5% of notional, a modest adverse move can close the trade even when your thesis is still intact.
Common Mistakes
- Treating a single print of basis trade as a trade signal without checking funding, open interest, and your liquidation price.
- Mixing venue conventions (coin-margined vs USDT-margined, cross vs isolated) and reading the wrong mark.
- Copying example numbers from a glossary into live size without checking the current book depth and fee schedule.
- Ignoring related terms that change the meaning of the print on a given day.
