Futures Basis Trading and Carry Strategy References
Summary
The document asks how traders can exploit changes in the difference between futures prices and the underlying cash asset, including how futures roll and carry costs affect the strategy. The response suggests framing this as carry or roll trading, with examples across foreign exchange, commodities, bond futures, and interest rate futures.
It points to a paper on using basis to predict returns and a book focused on Treasury futures basis for hedgers, speculators, and arbitrageurs. These are references rather than a developed trading method: no entry rules, implementation details, performance evidence, or treatment of roll and financing costs is provided. The document also notes that terminology around “basis” may be imprecise, and strategies vary by market, so the cited approaches require further study before application.
Key ideas
- Futures basis is described as the price difference between a futures contract and its underlying cash asset.
- The response relates basis strategies to carry and futures roll strategies.
- Carry and roll approaches can be studied in foreign exchange, commodities, bond futures, and interest rate futures.
- The document recommends a basis return prediction paper and a Treasury futures basis book as further references.
- No specific trading rules or empirical results are presented.
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Full text
# Reference on Futures basis trading strategy # Reference on Futures basis trading strategy I have heard that it is possible to trade on the futures basis. In my understanding, the futures basis is essentially the difference between the futures price and the underlying asset (also referred as cash). This basis tends to mean-revert, hence it is possible to slightly "anticipate" what its next move will be. I am looking for a reference for practitioners explaining how to trade on this futures basis. In particular, as holding futures involves: 1) rolling them; 2) pay/receive some carry costs, I am curious to know how these two effects above are taken into account into such trading strategies. ## Answer by radvan (score 3) https://quant.stackexchange.com/a/46206 There are some slight inaccuracies in using term basis. You probably meant strategies which profit from carry/futures roll. There are a lot of variations of carry/roll strategies on different markets. I can point you to: 1/ FX carry - can be easily traded using futures 2/ Term structure/carry in commodities 3/ Term structure/carry in bond futures 4/ Term structure/carry in interest rate futures And last paper directly about the "futures basis" - Molyboga, Marat: Predicting Out-of-Sample Returns: Using Basis to Beat the Historical Average ## Answer by AlRacoon (score 2) https://quant.stackexchange.com/a/46208 The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and Arbitrageurs by Galen Burghardt and Terry Belton is a good book on Treasury Futures.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.