The difference between futures prices and the corresponding underlying cash price. The basis is normally quoted as the cash price minus the price of the nearest futures delivery month. There is a high degree of correlation between cash and futures prices but the basis is not constant. A basis trade or cash and carry trade is an arbitrage trade which exploits the expected movements in the basis. The basis is likely to shrink to zero as the futures contract approaches its expiry date.

See also: Backwardation, Contango