Basis and cash-and-carry: spot plus a short on the perpetual future
Basis is the difference between a future’s price and the spot price. The cash-and-carry strategy earns on it: you buy the asset on spot and at the same time sell a future for the same amount. The asset’s price does not affect the result; only the basis remains or, on perpetual contracts, funding.
What basis is
When the future is above spot, the basis is positive (contango), which is the normal state of a rising market: participants are willing to pay for leverage. When it is below, the basis is negative (backwardation), which happens after sharp drops and in moments of panic.
Cash-and-carry on a quarterly future
A quarterly future has a date on which its price converges to spot. If the basis is, say, 2% for three months, buying spot and shorting the future locks in that 2% by expiry, wherever the price goes. The annualized value:
An example with illustrative numbers: a 2% basis with 90 days to expiry gives about 8.1% per year before fees.
Cash-and-carry on a perpetual future
A perp has no expiry date, so “convergence” is provided by funding. The pair is the same: long spot + short the perp. While the funding rate is positive, the short receives payments from longs, and the spot and perp prices move together, so the result does not depend on price. The total result is:
- funding received over the holding time;
- minus fees for entry and exit on both legs (four trades);
- minus the difference between entry and exit prices — the spread that eats part of the income;
- plus or minus the change in basis during the holding time.
| An illustrative example | |
|---|---|
| Funding rate | 0.01% per 8 hours, that is 0.03% a day |
| Income over 30 days | ≈ 0.9% of notional |
| Fees on 4 trades | for example 4 × 0.05% = 0.2% |
| Result before slippage | ≈ 0.7% |
The reverse pair
With negative funding the opposite pair is more attractive: short spot and long the perp. But spot can only be shorted by borrowing the asset, which has interest and limits, so the yield is lower and the risk higher. More often people compare two perps on different exchanges instead — see funding arbitrage.
Risks of cash-and-carry
- Margin on the short. When the price rises the short loses, and the spot asset is usually not collateral on another exchange. If margin runs short, the short is liquidated — and the spot long is left unhedged. A collateral reserve is needed (arbitrage risks).
- Funding changing sign. A positive rate can go negative and “eat” what has been accumulated.
- Divergence at exit. Two legs must be closed at the same time, and their order books have different depth.
- Exchange risk. Spot and the future may sit on different venues: funds have to be transferred, and withdrawals can be closed.
- Opportunity cost. Locking up capital for a small percentage can be worse than simple low-risk instruments.
How SpreadScope shows it
The scanner compares not only two futures with each other but also spot–futures pairs: the funding rate is brought to the pair’s period, the spread is calculated from bid and ask, and accumulated funding from real payments. The spread calculation is explained in the guide to the cross-exchange spread.