Futures Basis Trading

Futures basis trading involves exploiting the price difference between a cryptocurrency spot price and its corresponding futures contract price. In a healthy market, futures often trade at a premium to the spot price, a condition known as contango.

Traders can capture this spread by buying the spot asset and simultaneously selling a futures contract, locking in a risk-free profit if held to expiration. This strategy is popular in the crypto industry as it provides a way to earn yield that is uncorrelated with the direction of the underlying asset.

It relies on the mechanics of convergence, where the futures price and spot price meet at the time of contract settlement.