Spot price is the current market price of a stock or index — the price at which it is trading right now in the cash market. Futures price is the price at which a futures contract for that same stock or index is trading on NSE.
The difference between these two — futures price minus spot price — is called the basis.
Basis = Futures Price − Spot Price
Why Futures Trade at a Different Price
Futures contracts have an expiry date. The futures price reflects the cost of carrying the position until that expiry — essentially the risk-free interest rate applied to the spot price for the remaining duration of the contract.
For most actively traded Indian large-caps and the Nifty/BankNifty indices, near-month futures typically trade above the spot price. This is called contango (or positive basis). The premium exists because an investor who holds a futures position instead of shares does not pay the upfront capital required to own the shares — and the seller of the futures contract needs to be compensated for that funding cost.
When Basis Goes Negative
When futures trade below spot price, the basis is negative. This is called backwardation. It can signal:
- Strong near-term selling pressure. Participants who hold the underlying stock and want to hedge by selling futures may push futures prices down.
- Expected corporate action (dividend, rights issue). If a stock is about to pay a dividend, the futures price adjusts downward to reflect that the futures buyer won't receive the dividend.
- Panic or forced liquidation in the futures market — more sellers than buyers.
How Basis Converges at Expiry
By the last day of an F&O contract's life, futures price and spot price must converge — the basis goes to zero. This is guaranteed by arbitrage: any meaningful gap between futures and spot on expiry day is immediately eliminated by traders buying the cheaper instrument and selling the expensive one simultaneously.
This convergence is why far-month futures have a larger basis than near-month futures — they carry more time to expiry and thus more cost of carry.
Practical Use for Traders
Watching the basis between BankNifty futures and its spot index gives a real-time read on whether futures market participants are buying or selling aggressively relative to the cash market. A rapidly widening positive basis into a move can confirm momentum. A basis that collapses during a price rise can signal that the move lacks conviction.
This concept is developed further in Book 2 of the Drishti Series: The Confident Reader.
For educational purposes only. Profitma is not a SEBI-registered investment adviser or research analyst. Nothing in this article constitutes investment advice.