How to Use the Futures Market’s Basis Rate to Analyze Sentiment?
The basis rate, or the difference between futures and spot prices, indicates market sentiment. A positive basis (contango) suggests bullish sentiment, with traders willing to pay a premium for future delivery. A negative basis (backwardation) signals bearish expectations, often during market downturns. Monitoring funding rates in perpetual contracts also provides insights—high positive rates indicate overheated markets, while negative rates may signal buying opportunities.