Basis Trade

"Basis trades are arbitrage strategies which improve market functioning but are subject to specific risks, especially when excessively leveraged. Basis trades typically aim to exploit any mispricing between the spot price of a security (adjusted for the funding cost until the expiry of a futures contract) and its futures price – the difference being called the net basis. In order to do this, an arbitrageur needs to simultaneously conclude two opposing trades – one in the futures market and the other in the spot market. As the futures contract approaches its maturity, the futures price and the spot price converge, arguably making the basis trade return risk-free if held until the futures contract expires. In principle, therefore, basis trades are not speculative in nature and should have a beneficial impact on market efficiency and liquidity".

Source: https://www.ecb.europa.eu/press/financial-stability-publications/fsr/focus/2024/html/ecb.fsrbox202405_03~09cad3d18d.en.html