Basis Trade

Definition ∞ A basis trade is a financial strategy exploiting price differences between a cryptocurrency’s spot market and its futures market. Traders simultaneously purchase the spot asset and sell a futures contract, or the reverse, anticipating the price spread will narrow. This approach seeks gains from the “basis,” which is the variance between these two prices. It constitutes a type of arbitrage, aiming for consistent returns from market pricing disparities.
Context ∞ Basis trading is a prevalent approach in established cryptocurrency markets, particularly for Bitcoin and Ethereum. Market participants employ this method to achieve comparatively stable profits, frequently utilizing funding rates in perpetual futures agreements. The financial viability of basis trades depends on market price fluctuations, funding rates, and capital expenses. News sources often report changes in basis and funding rates as signals of market sentiment and available capital.