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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.

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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

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  • $\begingroup$ Thanks a lot. Do you know where I can find a free copy of the last article mentionned? $\endgroup$ – JejeBelfort Jun 20 at 2:09
  • $\begingroup$ I know this is already a lot of references, but would you have one for equity futures? $\endgroup$ – JejeBelfort Jun 22 at 8:05
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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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  • $\begingroup$ This book looks very good, but might be too bond-oriented. $\endgroup$ – JejeBelfort Jun 20 at 2:08
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    $\begingroup$ @JejeBelfort ---Yes. This is related to bond futures but the same concepts will apply to other asset class futures as well. Bond futures will also incorporate features absent in other futures is prob the most complex (for example, Cheapest to deliver option, wildcard option). If one can understand these futures, one should be able to adapt to trading other futures. $\endgroup$ – AlRacoon Jun 20 at 13:41

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