Premium and basis

Derivatives rarely trade at exactly the spot price. This lesson measures the gap for perpetuals and dated futures, and shows how to compare futures that expire on different dates.

The perpetual premium is how far the perpetual trades above spot, in percent. With spot at $100,000 and the perpetual at $100,500, the premium is +0.50%.

When the perpetual trades below spot, the number turns negative and traders call it a discount.

When traders are eager to be long, they pay up on the perpetual and the premium grows. In a selloff, sellers push the perpetual below spot.

Funding pulls the two back together over time, which is why large premiums rarely last long.

For dated futures, the gap to spot is called the basis: (future − spot) ÷ spot. Futures usually trade above spot, more so the further away the expiry. Traders call that contango.

Sometimes futures trade below spot, which is called backwardation. It tends to show up when traders are nervous.

A 2% basis means different things for a contract that expires next month and one that expires in six months. Annualized basis puts them on the same yearly scale: basis × 365 ÷ days to expiry.

Move the basis and the days and compare the results.

As expiry gets closer, the future's price moves toward spot, and on the last day the contract settles at the spot price. The basis shrinks, but the annualized basis can stay about the same, because there's less time left to earn it.

Once settled, the contract stays on record as its own market, and the next contract is a separate market.

This is a week of perpetual premium, hour by hour. The Perpetual premium template fires when the perpetual trades 0.5% or more above spot.

Move the threshold and count the Signals. Under the chart, the premium and the annualized basis of the December future run on the live feed.

Three quick questions, then a bot to build.

Read the strategy and set up a bot that follows it, with the direction and the conditions it names and no others. Passing depends on the build alone. Once it's right, the bot fires and you see what the market did next, which won't always go your way.