Future vs Spot: Read the Basis

The futures chart and the cash chart of the same instrument are never quite identical. The gap between them, the basis, carries information: whether the futures market is confident or nervous, whether a breakout has conviction, and how much interest and dividend expectation is priced into the contract. Stolo's Future vs Spot view plots both price lines together so you watch that spread move instead of eyeballing two separate charts.

The problem it solves

Most traders look at one chart. The premium or discount of the future to spot is a separate signal that a price chart hides. A rally where the premium widens is a different animal to a rally where the premium shrinks, and only a side-by-side view shows you which one you are in.

The concept

1. The future is priced off spot plus carry. Fair value is roughly the spot price plus the interest saved by not owning the underlying, minus expected dividends, over the time to expiry.
2. A premium is normal. For an index, the future almost always trades slightly above spot. This is contango.
3. A discount is a warning. A future below spot, backwardation, means sellers are aggressive or hedgers are paying up for protection.
4. The basis converges at expiry. As time to expiry falls, the carry falls, and on expiry day the future settles at spot with no gap.

The excess of the premium over fair carry is what a cash and carry arbitrage captures: buy the underlying, sell the future, hold to expiry and pocket the difference. That arbitrage is what keeps the basis honest.

Key terms explained

Term	What it means
Basis	Futures price minus spot price.
Premium / contango	Future above spot. The normal state.
Discount / backwardation	Future below spot. A stress signal.
Cost of carry	Interest saved by holding the future, less expected dividends, over time to expiry.
Convergence	The basis shrinking to zero as expiry approaches.
Cash and carry arbitrage	Buy cash, sell the future when the premium exceeds fair carry, hold to expiry.

A worked example

NIFTY spot is at 22,000. The current-month future, with 12 days to expiry, trades at 22,055, a 55-point premium, roughly 0.25 percent, which is in line with fair carry.

• At 11:00 NIFTY breaks above 22,050. On the Future vs Spot view the premium widens to 90 points as price climbs. Buyers are paying up. The breakout has futures conviction and a trader takes the long.
• Two days later, price is testing 22,050 again from below, but this time the future is at a 10-point discount to spot. The futures market is now leaning short. The trader treats the level as more likely to break down and stands aside from the long.

How to use it in Stolo

1. Open Analysis, then Futures, then Future vs Spot.
2. Choose the instrument.
3. Read the two price lines and the spread between them: a premium is normal, a discount is a warning.
4. Watch which way the spread is moving as price moves. Widening premium on a rally is confirmation; shrinking premium is a caution.
5. Note the days to expiry, since the basis narrows naturally as expiry nears.
6. Load a past date to see how the premium behaved into a previous expiry or event.

tip

On expiry week, expect the premium to shrink on its own. Do not read that convergence as bearish; it is time value coming out, not selling.

How traders use it

• Breakout confirmation. Take an index breakout more seriously when the futures premium widens with it.
• Intraday bias. A NIFTY future sliding into discount during the day is an early bearish tell.
• Stock-specific read. A stock future at a persistent steep discount points to heavy short interest or an upcoming dividend.
• Roll and calendar timing. Watch the near-month basis into expiry to time the roll to the next contract.

Live mode and history mode

Live mode streams both price lines and the spread through the session. History mode redraws them for a past date, which is how you study how the basis behaved into a previous expiry or around an event.

Frequently asked questions

What is the basis in futures?

The basis is the difference between the futures price and the spot price of the same instrument. If the NIFTY future trades at 22,050 while spot is at 22,000, the basis is a 50-point premium. The basis normally shrinks toward zero as expiry approaches, since at expiry the future settles at spot.

Why do futures trade at a premium to spot?

Because of the cost of carry. Holding a future instead of the underlying frees up capital that earns interest, and you forgo any dividends the underlying would pay. The fair premium is roughly the interest saved minus the expected dividends over the time to expiry. This normal premium state is called contango.

What does it mean when a future goes to a discount?

A future trading below spot, called backwardation, is not normal for an index and signals stress: aggressive selling in the futures, a rush to hedge, or heavy dividend expectations for a stock. A NIFTY future slipping into discount during the day is a bearish tell that the cash market has not fully reflected yet.

How do I use the future versus spot spread to confirm a breakout?

On a genuine upside breakout the futures premium usually widens, because buyers are willing to pay up to hold leveraged longs. If price breaks out but the premium stays flat or shrinks, the futures market is not backing the move and it is more likely to fail.

What is cash and carry arbitrage?

When the futures premium is larger than the true cost of carry, an arbitrageur buys the underlying in the cash market and sells the future, locking in the excess premium as a near risk-free return held to expiry. The reverse, selling cash and buying a cheap future, is called reverse cash and carry. This arbitrage is what keeps the basis close to fair value.

Should I trade off the futures chart or the spot chart?

Trade off the futures chart, since that is the instrument you actually buy and sell and it carries open interest and volume. Keep the spot chart as a reference. The value of the future versus spot view is that it shows both and the spread between them at once.

Does the basis behave differently for stocks and indices?

Yes. Index futures usually sit at a small, stable premium. Single stock futures can swing to a discount around a dividend, and their basis is more sensitive to stock-specific borrowing costs and hard-to-borrow situations. A stock future at a persistent steep discount often reflects heavy short interest.

Can I see the historical future versus spot spread?

Yes. Pick a past date and Stolo redraws both price lines and the spread for that session, which is useful for seeing how the premium behaved into a past expiry or around an event.

What happens to the basis near expiry?

It converges to zero. On expiry day the future settles at the spot price, so any premium or discount is fully eroded. In the last week the basis narrows steadily, which is why calendar and roll trades are timed around it.

Which plan includes the Future vs Spot view?

It is part of Stolo's paid analysis access and can be tried on the Flexi Trial, which starts at ₹199. See the subscription plans page for current pricing.

Watch the basis, not just the price

Open Stolo's Future vs Spot view to track the futures premium or discount for any F&O instrument, live or on any past date.

Start with a Flexi Trial from ₹199

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