BasisOS
  • INTRODUCTION
    • What is BasisOS
    • Key Concepts in Basis Trading
    • Vision and Value Proposition
  • Basis Vaults
    • Architecture Overview
    • Components and Interactions
    • Managed Approach
    • Execution Flow
  • BASISOS AGENT
    • Overview
    • Core Components
    • System Design and Interactions
    • Agentic Roadmap
      • Stage 0: Assistant
      • Stage 1: Maintainer
      • Stage 2: Curator
      • Stage 3: Sovereign
  • TOKENOMICS
    • Token Distribution
    • Liquidity Mining
      • Distribution Mechanics
      • Rewards Schedule
    • Mindshare Mining
      • Distribution Mechanics
      • Rewards Schedule
  • CORE PROTOCOL
    • LogarithmVault
    • BasisStrategy
    • SpotManager
    • OffchainPositionManager
    • GmxV2PositionManager
    • Contract Addresses
  • RISK MANAGEMENT
    • Funding Risk
    • Liquidity Risk
    • Risk Framework
      • Margin Treasury
      • Maximum Leverage
      • Asset Clustering
      • Strategy Capacity
    • Backtests
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  1. INTRODUCTION

Key Concepts in Basis Trading

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Last updated 4 days ago

Basis trading revolves around exploiting the price differences between an asset’s spot market and its futures (or perpetual) market. Here are the fundamental concepts:

  • Funding Rate: Perpetual futures contracts use a funding rate mechanism—a periodic payment exchanged between long and short position holders. This rate helps align the futures price with the spot price and represents a source of revenue (or cost) for the strategy. When the funding rate is positive, it benefits the short position, making the strategy profitable even in a sideways market.

  • Market Neutrality: By holding both a long position in the spot market and a short position in the futures market, basis trading aims to cancel out directional market risks. This market-neutral approach focuses on capturing the funding fee premium rather than relying on price movements.

  • Rebalancing: Maintaining an effective hedge requires continuous adjustments. Rebalancing ensures that the positions stay aligned with target leverage ratios and risk parameters, especially as market conditions change.

  • Leverage & Risk Management: Proper management of leverage is crucial. The strategy uses predefined minimum, target, and maximum leverage values to optimize returns while controlling risk. Effective risk management helps prevent large losses during volatile market periods.

In essence, basis trading is about capturing the premium available from funding rate differentials and the spread between spot and futures prices, all while maintaining a balanced, market-neutral portfolio. This strategic combination enables traders to generate yield regardless of broader market trends.