The basis is the difference between a derivative's price (futures or perpetual swap) and the underlying spot price. In crypto, the most actively watched basis is between perpetual swaps and spot. Basis trades exploit this difference to capture yield while hedging out directional risk.
Definition
Basis = derivative price - spot price. When the perp trades above spot, the basis is positive (premium). When it trades below, the basis is negative (discount). The magnitude of the basis reflects the market's demand for leverage.
Adjust the perp and spot prices to see the raw basis, annualized basis, and funding direction.
Perpetual Price$100,500
$95,000$105,000
Spot Price$100,000
$95,000$105,000
Funding Period8h
1h24h
Discount (perp < spot)0Premium (perp > spot)
raw_basis = 100,500 - 100,000 = +$500
basis_% = +0.5000%
annualized = 0.5000% x 1095 periods = +547.50%
Raw Basis
+0.5000%
Annualized Basis
+547.50%
Direction
Premium
The percentage basis is:
basis % = (perp price - spot price) / spot price
The basis and the funding rate are closely related. The funding rate is the mechanism that converges the basis toward zero over time. When basis is positive, positive funding (longs pay shorts) creates selling pressure on the perp, pushing it back toward spot. When basis is negative, negative funding (shorts pay longs) pulls the perp back up. In steady state, the annualized basis approximates the cumulative funding rate.
On perpetual swaps, the funding rate is the mechanism that keeps the perp price tethered to spot. When the basis is positive, funding is positive (longs pay shorts), which gradually pushes the perp price back down toward spot. When the basis is negative, funding is negative (shorts pay longs), pulling the perp price back up.
The funding rate is directly derived from the basis. A larger basis produces a larger funding rate, creating a stronger pull back toward spot.
💡
Basis Is the Cost of Leverage
When the basis is high, longs are paying a steep price to stay long. That cost shows up as funding payments every funding period (typically every 8 hours). An annualized basis of 30% means leveraged longs are effectively paying 30% per year for the privilege of holding their position. This is the price the market charges for leverage demand.
The classic basis trade. You go long spot and short perp simultaneously.
Leg 1
Long Spot
+
Leg 2
Short Perp
→
Result
Earn Funding
When to use: Positive basis (perp above spot)
How it works: Buy the asset on spot. Open a short perp position of equal size. You are now market-neutral. As long as the basis remains positive, you earn funding payments from longs.
Return: Approximately equal to the annualized basis at the time of entry, minus trading costs
Risk profile: Low directional risk, but not risk-free
Your short perp position can be liquidated if the asset rallies sharply before you can add margin. Even though the spot leg gains value, that gain is not recognized as margin on the perp exchange.
Equilibrium. No strong conviction in either direction.
Negative
Fear or hedging. Shorts are dominant. Can signal capitulation near bottoms.
ℹ️
Basis Is Forward-Looking Sentiment
Unlike price, which shows you what happened, basis shows you what traders are willing to pay right now for future exposure. A rising basis during flat price action means conviction is building. A collapsing basis during a rally means leveraged longs are exiting or getting liquidated.
People sometimes use "basis" and "funding rate" interchangeably, but they are different:
Basis
The price difference
Measured in dollars or percentage
Snapshot of perp price minus spot price at a given moment
Can be annualized for comparison across time periods
Changes continuously with market prices
Funding Rate
The payment mechanism
Measured in percentage per period (e.g., 0.01% per 8h)
Derived from the basis but includes dampening and clamp logic
Paid/received at fixed intervals (1h, 4h, or 8h depending on exchange)
Used to anchor the perp price back toward spot
See: Perp Funding for the full mechanism
The basis drives the funding rate, but the relationship is not linear. Most exchanges apply a clamp to prevent extreme funding rates and add an interest rate component. The result is that funding rate converges toward basis over time but does not match it exactly in any single period.
Test your understanding before moving on.
Q: BTC perp is trading at $101,000 and spot is at $100,000. What is the basis, and what does it imply about funding?
Q: You set up a cash-and-carry trade: long 1 BTC spot, short 1 BTC perp. The annualized basis is +12%. What is your expected return and what are the main risks?
Q: During a market crash, the BTC perp drops to $95,000 while spot is at $97,000. What is happening?
💡 Tip: Try answering each question yourself before revealing the answer.
Basis trades exist across every major asset class in traditional finance. The underlying principle is the same: exploit a price difference between two instruments that should converge.
Treasury basis -- The spread between Treasury futures and the underlying bonds. Traders buy the cheapest-to-deliver (CTD) bond and short the futures contract to capture the basis. This is the largest basis trade in the world by notional and relies on repo financing to fund the long bond leg.
Commodity basis -- The difference between spot and futures prices for physical commodities. The basis reflects storage costs, insurance, and convenience yield (the benefit of holding physical inventory). Grain elevators, oil storage operators, and metal warehouses all manage commodity basis as part of their core business.
ETF basis -- The gap between an ETF's net asset value (NAV) and its market price. Authorized participants arbitrage this gap through the creation/redemption mechanism: when the ETF trades at a premium, they create new shares; when it trades at a discount, they redeem shares. This keeps the basis tight for liquid ETFs.
Options basis -- Violations of put-call parity create an options basis. If the synthetic forward (long call + short put) prices differently from the actual forward, arbitrageurs trade the difference. In practice, dividends, borrowing costs, and early exercise rights can cause persistent but explainable deviations.
Related:
Perp Funding - How the funding rate mechanism works
Beta & Alpha - Measuring exposure and excess returns