Basis trade
Also: Cash and carry
Buying an asset and selling a future against it to capture the gap between the two prices, which converges to zero at expiry.
The future trades above spot when holders will pay to be long without posting the full amount. Buying spot and selling the future locks that difference in, and because the two prices must meet at expiry, the gap is earned rather than predicted. Directional exposure is close to nil — which is what makes it attractive to funds that are not paid to have a view.
Why it is not risk-free
- It is a leverage trade. The return on unlevered capital is small, so the position is usually financed, and the financing is where the risk enters.
- Margin is called on the short leg when the price rises. A profitable position can force liquidation before expiry if the collateral is in the wrong place.
- It crowds. The spread is visible to everyone, so it compresses as capital arrives, which pushes participants to more leverage for the same return.
What it tells an observer
The size of the basis is a price for leverage. A wide persistent basis means demand to be long exceeds the balance sheet willing to carry it; a compressed one means the opposite. It is one of the few positioning measures in this market that is a transaction rather than a survey.
Where it connects to everything else
Much of what is presented as on-chain yield is this trade wearing different clothes — someone else's leverage, intermediated. That is not a criticism of the yield, but it does mean the risk being taken is the risk of a crowded financing trade unwinding, not the risk of the protocol paying it.