Basis Trade Convergence

Basis trade convergence is the process where the price of a derivative, such as a futures contract, moves toward the spot price of the underlying asset as the expiration date approaches. The difference between these two prices is known as the basis.

Ideally, at the moment of expiration, the basis should be zero. Traders exploit this relationship by buying the cheaper asset and selling the more expensive one, profiting when the prices converge.

In crypto, the basis can be influenced by funding rates and borrowing costs, creating unique opportunities for yield generation. Monitoring convergence is essential for traders using cash-and-carry strategies to ensure they capture the intended spread.