What is Basis?
Basis refers to the difference between the spot price of a commodity or asset and the price of the corresponding futures contract. It reflects the price relationship between the spot market and the futures market.
Basis is often used to measure market supply and demand and price trends. When the basis is positive, it means that the spot price is higher than the futures price, which may mean tight supply or strong demand, and the market is more bullish. On the contrary, when the basis is negative, it means that the spot price is lower than the futures price, which may mean oversupply or weak demand, and the market is more bearish.
Changes in basis can be affected by a variety of factors, including seasonal demand changes, supply conditions, trader expectations and market sentiment. Basis traders often try to use changes in basis to conduct arbitrage or risk hedging operations. They may buy spot and sell corresponding futures contracts at the same time to profit from price differences.
Basis has different meanings and applications in different markets. In agricultural markets, basis usually reflects the impact of seasonal supply and demand changes and logistics costs. In energy markets, basis can be affected by factors such as production, storage and transportation. In financial markets, basis can reflect factors such as interest rate differences and funding costs.
Basis is very common in commodity futures trading, but can also be used in other trading markets such as currency and stock futures trading.
In crypto contracts, the basis is usually called the contract basis, which refers to the difference between the contract price and the spot index price.
That is, contract basis = contract price - spot index price
The price of a contract can generally reflect the market's future expectations for the price of digital currency.
Therefore, when the basis is a large positive number, it means that investors are generally bullish and have a high sentiment to go long. If the basis is negative and the value is large, it means that investors are generally bearish and have a high sentiment to go short. Through the contract basis, you can understand the overall trend of the market and adjust your trading strategy accordingly.
