# Basis Arbitrage ⎊ Area ⎊ Resource 2

---

## What is the Arbitrage of Basis Arbitrage?

Basis arbitrage is a quantitative trading strategy that capitalizes on temporary discrepancies between the price of a derivative contract and the price of its underlying asset. This strategy exploits the "basis," which is the difference between the spot price and the futures price. In cryptocurrency markets, basis arbitrage frequently occurs between perpetual futures contracts and the underlying crypto asset on different exchanges.

## What is the Strategy of Basis Arbitrage?

The execution of basis arbitrage involves simultaneously taking opposite positions in the spot market and the derivatives market. A common implementation involves buying the underlying asset while shorting the futures contract when the futures price trades at a premium (contango). The profit is realized when the basis converges as the futures contract approaches expiration or through funding rate payments in perpetual futures.

## What is the Mechanism of Basis Arbitrage?

The effectiveness of basis arbitrage relies on market efficiency and the predictable convergence of prices. In crypto derivatives, funding rates serve as the primary mechanism for basis convergence in perpetual futures, incentivizing traders to balance long and short positions. While theoretically risk-free, practical implementation faces challenges from execution latency, transaction costs, and counterparty risk, particularly in volatile crypto environments.


---

## [Game Theory Arbitrage](https://term.greeks.live/term/game-theory-arbitrage/)

## [Transaction Cost Arbitrage](https://term.greeks.live/term/transaction-cost-arbitrage/)

## [Arbitrage Efficiency](https://term.greeks.live/term/arbitrage-efficiency/)

## [Regulatory Arbitrage Strategies](https://term.greeks.live/term/regulatory-arbitrage-strategies/)

## [Theoretical Basis](https://term.greeks.live/term/theoretical-basis/)

## [Basis Swaps](https://term.greeks.live/term/basis-swaps/)

## [Crypto Basis Trade](https://term.greeks.live/term/crypto-basis-trade/)

## [Basis Trading Instruments](https://term.greeks.live/term/basis-trading-instruments/)

## [Regulatory Arbitrage Implications](https://term.greeks.live/term/regulatory-arbitrage-implications/)

## [Decentralized Exchange Arbitrage](https://term.greeks.live/term/decentralized-exchange-arbitrage/)

## [Basis Trading Algorithms](https://term.greeks.live/term/basis-trading-algorithms/)

## [Front-Running Arbitrage](https://term.greeks.live/term/front-running-arbitrage/)

## [CEX DEX Arbitrage](https://term.greeks.live/term/cex-dex-arbitrage/)

## [Basis Trading Strategies](https://term.greeks.live/term/basis-trading-strategies/)

## [Cost Basis Reduction](https://term.greeks.live/term/cost-basis-reduction/)

## [Risk Free Rate Problem](https://term.greeks.live/term/risk-free-rate-problem/)

## [Implied Funding Rate](https://term.greeks.live/term/implied-funding-rate/)

## [Regulatory Arbitrage Impact](https://term.greeks.live/term/regulatory-arbitrage-impact/)

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---

**Original URL:** https://term.greeks.live/area/basis-arbitrage/resource/2/