One of the most straightforward and profitable crypto arbitrage strategies involves capturing the basis—the price difference between spot and futures contracts. This guide walks you through basis trading using Bitcoin and BitMEX futures contracts, with step-by-step execution and profit calculations.
Understanding Key Concepts
Before executing the strategy, familiarize yourself with these terms:
- Futures Contract: A derivative instrument granting exposure to Bitcoin’s price movements without owning the asset.
- Spot Price: The current market price for immediate Bitcoin delivery.
- Basis: The difference between futures and spot prices (
Futures Price – Spot Price).
Example: If Bitcoin futures trade at $30,100** and spot at **$30,000, the basis is $100.
Step-by-Step Basis Trading Strategy
Step 1: Execute the Arbitrage Trade
Scenario:
- Futures price (XBTU23): $30,100
- Spot price: $30,000
- Basis: $100
Trade Setup:
- Buy Bitcoin Spot: Purchase 1 BTC at $30,000 on BitMEX Spot.
Sell Futures Contracts: Calculate the required futures contracts to hedge the position:
- Total USD to Hedge = Spot Value + (Basis × BTC Quantity)
$30,000 + ($100 × 1 BTC) = $30,100 - Sell 30,100 XBTU23 contracts (each worth $1).
- Total USD to Hedge = Spot Value + (Basis × BTC Quantity)
- Leverage: Use ≤10x leverage (despite BitMEX offering 100x) to mitigate risk.
👉 Master crypto arbitrage with BitMEX futures
Step 2: Profit Calculation
At settlement, Karen’s profit is locked in:
- Basis Earned: $100 (regardless of Bitcoin’s price movement).
- Bitcoin Profit Formula:
(1 / Spot Price – 1 / Futures Price) × Contracts Sold(1/$30,000 – 1/$30,100) × 30,100 = 0.0033 BTC(~$100 at settlement).
Step 3: Settlement Process
- Contract Expiry: XBTU23 settles on 29 September 2023 using the .BXBT30M Index (30-minute TWAP).
Sell Remaining Bitcoin:
- Before expiry (11:30–12:00 UTC), sell the 0.8 BTC not used as margin.
- Post-expiry, Karen retains 0.2 BTC (margin) + 0.0033 BTC (profit).
- Ideal Outcome: Sell all 1.0033 BTC at **$30,000**, netting a **3.33% return** ($31,000 total).
FAQs
1. Is basis trading risk-free?
No. While the basis is predictable, leverage and timing risks exist (e.g., slippage during settlement).
2. Which exchanges support this strategy?
BitMEX, Deribit, and OKX offer liquid futures contracts for basis trading.
👉 Explore top crypto arbitrage platforms
3. How often can I execute basis trades?
Opportunities arise when futures deviate from spot—common during high volatility or funding rate imbalances.
Key Takeaways
- Basis trading exploits price disparities between futures and spot markets.
- Profit is locked in at trade execution, independent of Bitcoin’s future price.
- Use moderate leverage and monitor settlement procedures carefully.
By mastering this strategy, traders can capitalize on market inefficiencies with calculated risk.