Basis
Also called: futures basis, contango, backwardation
The difference between a futures price and the spot price of its underlying.
When futures are above spot, the market is in contango; below, backwardation. Basis mainly reflects the cost of carry and shrinks to zero at expiry, when futures and spot prices converge. It affects hedgers and anyone rolling futures.
Learn more in these lessons
- Basis, cost of carry and convergenceWhy is a futures price different from the spot price, and why do they meet at expiry?
- Arbitrage basicsWhat is arbitrage, and can it really be risk-free?
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