Strategies
Basis Trading
Arbitrage strategy exploiting price differences between spot and futures markets
Definition
Basis trading exploits price differences between spot and futures markets by simultaneously buying one and selling the other, profiting as the basis (price difference) converges to zero at expiration.
Example
If ETH futures trade at $2050 while spot is $2000, buy spot ETH and short futures, profiting $50 per ETH when they converge at expiration.
What to check
Treat it as a strategy: map each step, each contract dependency, each exit condition, and the downside before committing capital. The main checks are: Basis risk; Funding costs; Liquidity risk; Execution timing.
Risks to Consider
- Basis risk
- Funding costs
- Liquidity risk
- Execution timing
Common Questions
What does Basis Trading mean in DeFi?
Basis Trading means Arbitrage strategy exploiting price differences between spot and futures markets. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.
How is Basis Trading used in practice?
A practical example: If ETH futures trade at $2050 while spot is $2000, buy spot ETH and short futures, profiting $50 per ETH when they converge at expiration.
What should I check before relying on Basis Trading?
Check basis risk, funding costs, liquidity risk, execution timing. Also verify liquidity, oracle assumptions, admin controls, and whether the protocol has been tested during stressed markets.
