BA-13 · LESSON 02

The basis trade

KEY DEFINITIONS

Terms used in this lesson

BTC: The common market ticker for bitcoin.
Spread: The gap between executable buy and sell prices in a market.

A cash-and-carry trade holds spot and shorts a premium future, earning convergence while bearing funding, custody, margin, and execution risks.

45 min Difficulty 3/5 Not started

VISUAL MODEL

See the whole mechanism before going step by step

Use the diagrams to orient yourself. Then the guided explanation below teaches every part in depth.

4 explanatory views

CONCEPT-SPECIFIC MAP · market ledgerEvery financial return is a ledger of positions, cash flows, and riskSelect any state to inspect its exact role.

RELATIONSHIP MAPCompeting paths and resolution

01
POSITIONAsset and liability
Start by naming the exact long, short, debt, collateral, or reserve position.
02
PRICE PATHEntry, exit, mark
Price changes affect each leg and can trigger margin or liquidation boundaries.
03
CASH FLOWSThe basis trade
The The basis trade model includes fees, funding, spreads, slippage, and timing.
04
RECONCILEassets = claims + equity
Every successor state must conserve the ledger under the chosen units.
05
STRESSChanged assumption
A useful model exposes what fails when liquidity, price, cost, or timing is adverse.

Rule shown: Claims about yield or profit are calculations from versioned assumptions, never protocol facts.

STAGE 1 OF 5POSITION: Asset and liability

Start by naming the exact long, short, debt, collateral, or reserve position.

Governing relationship: Claims about yield or profit are calculations from versioned assumptions, never protocol facts. Complete path: 1. POSITION, Asset and liability. Start by naming the exact long, short, debt, collateral, or reserve position. 2. PRICE PATH, Entry, exit, mark. Price changes affect each leg and can trigger margin or liquidation boundaries. 3. CASH FLOWS, The basis trade. The The basis trade model includes fees, funding, spreads, slippage, and timing. 4. RECONCILE, assets = claims + equity. Every successor state must conserve the ledger under the chosen units. 5. STRESS, Changed assumption. A useful model exposes what fails when liquidity, price, cost, or timing is adverse.

1. State transitionWhat exists, what changes, and what results

BEFORE

Spot BTC is $100,000 and a three-month future is $103,000. A trader buys one BTC and shorts one future.

MECHANISM

The trader acquires BTC, creating positive exposure to the spot price.

AFTER

The trade targets convergence, not a prediction that bitcoin will rise. ‘Market neutral’ still does not mean risk-free.

Text equivalent: Starting from Spot BTC is $100,000 and a three-month future is $103,000. A trader buys one BTC and shorts one future. The mechanism begins when The trader acquires BTC, creating positive exposure to the spot price. The resulting lesson is The trade targets convergence, not a prediction that bitcoin will rise. ‘Market neutral’ still does not mean risk-free.

2. Mechanism pathSelect a stage to inspect its job

STAGE 1 OF 4

Buy the spot asset

The trader acquires BTC, creating positive exposure to the spot price.

Complete path: 1. Buy the spot asset: The trader acquires BTC, creating positive exposure to the spot price. 2. Short the future: The trader sells a futures contract with approximately matching BTC exposure, offsetting most directional price risk. 3. Wait for convergence: At expiry, the futures price converges toward spot. If the initial premium exceeds all costs, the spread can become profit. 4. Manage the path risks: Margin calls, changing funding, venue failure, custody, basis widening, execution mismatch, and forced liquidation can cause losses before convergence.

3. Rule and failure boundaryWhat accepts the result and where it can stop

ACCEPTED PATH

The ledger opens equal BTC exposure on both legs, marks both paths at every step, subtracts every stated cost, enforces maintenance margin, and requires venue, custody, and counterparty availability before claiming convergence profit.

CHANGED CONDITION

A margin breach, forced exit, unavailable venue, blocked custody, counterparty default, or costs above gross basis terminates or changes the result before expiry.

Important distinction: A basis trade locks in a guaranteed return as soon as both legs are opened. Operational, margin, counterparty, funding, execution, and liquidation risks can prevent the theoretical spread from becoming realized profit.

Text equivalent: The accepted path is enforced by The ledger opens equal BTC exposure on both legs, marks both paths at every step, subtracts every stated cost, enforces maintenance margin, and requires venue, custody, and counterparty availability before claiming convergence profit. If the required condition changes, A margin breach, forced exit, unavailable venue, blocked custody, counterparty default, or costs above gross basis terminates or changes the result before expiry.

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Learn the idea

A basis trade aims to earn the gap between spot bitcoin and a futures price. The classic cash-and-carry version buys spot BTC and shorts an equal futures exposure when futures trade at a premium.

GUIDED EXPLANATION1/4 ideas inspected

Buy the spot asset

The trader acquires BTC, creating positive exposure to the spot price.

The worked example follows the explanation

Inspect every idea above to open it.

Important distinction“A basis trade locks in a guaranteed return as soon as both legs are opened.”

Operational, margin, counterparty, funding, execution, and liquidation risks can prevent the theoretical spread from becoming realized profit.

FINISH LEARNING FIRST

The questions unlock after every required learning activity

Inspect every guided idea, open the worked example, rebuild its mechanism, and complete the deterministic lesson tool. Your progress is saved automatically.