What Is Basis Trading and How Does It Work?

Key Takeaways

Basis trading is about taking advantage of price gaps between what something costs now (spot price) versus what it’s expected to cost later (futures price).

Farmers, investors, and crypto traders can use basis trading strategies to hedge risks or make profits. It’s popular in commodities, bonds, and Bitcoin markets.

Basis trading involves risks and can be confusing for beginners. It requires understanding market dynamics and managing risks due to unexpected price movements or eventual liquidity issues