Basis = Futures price – Spot price

The difference between the price of the underlying asset in the cash market and the futures price is called the basis. As a futures contract reaches its expiry date, the basis tends to become less till it becomes zero at the time of settlement. This is because the futures contract is settled at the closing market price of the underlying asset.

In general, since the futures price is greater than the spot price, the basis is positive. However, at times, the futures price may be lower than the spot price. This may happen when expectations are bearish in the near future or the cost of carry is negative etc.