Futures Basis: State the Sign Before Comparing Cash and Futures

Define the subtraction first

Two analysts can report +2 and −2 for the same pair of prices if they use opposite basis conventions. CME's equity-index lesson uses futures price minus spot index value. Its broader glossary also reflects cash-market terminology in which basis can be cash minus futures. A sign without a formula is therefore incomplete.

This reference uses basis = futures − cash throughout. Both prices must have comparable economic units. A cash price per barrel cannot be subtracted from a total futures contract value in dollars; first convert them to the same price-per-unit basis.

Calculate the change from both sides

Assume matched, hypothetical cash and futures observations at two times:

Illustrative basis using futures minus cash

Observation	Cash price	Futures price	Basis
First	99.00	101.00	+2.00
Second	100.00	101.50	+1.50
Change	+1.00	+0.50	−0.50

The basis narrowed by 0.50 even though both prices rose. A hypothetical matched long-futures, short-cash pair would gain 0.50 on the futures side and lose 1.00 on the cash side: a net loss of 0.50 per matched unit before costs. Basis exposure depends on relative movement, not simply on whether the futures price increased.

Under the opposite cash-minus-futures convention, the first basis would be −2.00 and the second −1.50. Descriptions such as “strengthened” are easy to misread across conventions. Reporting both prices and the formula removes that ambiguity.

Why the difference can exist

The relevant economic inputs depend on the market. Equity-index comparisons involve financing and dividend expectations. Commodity comparisons can involve storage, location, quality and availability. FX comparisons involve the two currencies' funding rates and settlement dates, as CME's FX basis explanation discusses.

A theoretical carrying-cost relationship is not a live executable quote. Bid–ask spreads, financing access, contract rules and the timing of cash flows can make an apparent difference costly or impossible to capture. The cash asset may also fail to match exactly what the futures contract settles against.

Build a comparison that can be audited

Record the futures contract month, cash reference, quote currency, quantity unit and timestamp. Avoid subtracting a live futures quote from a stale cash close without labeling the time difference. Specify whether prices are bids, asks, trades or settlement references.

Do not confuse this calculation with the slope between two futures maturities. Calendar spreads compare those maturities, while contango and backwardation describe the futures curve. For copied trades, a cash-like CFD and an exchange future can have related prices yet different basis, size and expiry; a shared market name does not make them interchangeable.

A hedge worksheet should also state what remains unmatched. Differences in cash-asset quality, delivery location, maturity or quantity can make the hedge's result diverge from a textbook basis calculation. Naming those residual differences is more informative than labeling the pair simply “hedged.”