What is Basis?
Basis is used to indicate the change in the difference between the Latest Price and the Index Price in the Futures Market at the same time. The Mark Price is calculated from the Index Price. A wide Basis indicates an expanding price gap, which poses a risk of liquidation. To avoid this risk, traders need to closely monitor the fluctuations of Basis Rate and take risk management measures, such as controlling leverage and increasing margin.
Where can I check the Basis Rate of the Futures Market?
1. Visit CoinEx official website (https://www.coinex.com), log in to your account, and select [Market Info] under [Futures] in the top-left navigation bar.
2. On the “Market Information” page, click on [Index Price], select the trading pair, and click on [Basis Rate] to check the recent Basis Rate of the desired trading pair.
Note: You can check the Basis Rate of the market for the past 30 days.
Causes and Effects of Wide Basis
1. Causes of Wide Basis
(1) Market Sentiment Swings
Major shifts in market sentiment can lead to drastic changes in buying and selling behaviors, affecting the correlation between the Latest Price and the Index Price, resulting in a rapid expansion of Basis.
(2) Insufficient Liquidity
In markets with low liquidity, prices may be prone to larger fluctuations, which can lead to unusual widening of Basis.
(3) Influence of Other External Events
Major news, policy changes, or market events (such as technical failures or regulatory dynamics) may cause a decrease in trading activity or significant price volatility.
2. Effects of Wide Basis
When the Basis widens excessively, the Market Price will deviate significantly from the Mark Price. However, the Liquidation Price will be calculated based on the Mark Price, and investors may face the risk of forced liquidation during market fluctuations.
Note: When the Basis Rate of the Futures Market exceeds a certain range, a risk waring will be showned on the trading page. At that time, please manage your position risks, such as controlling leverage and increasing margin.
Index Price Protection Mechanism
To protect users' assets and avoid unnecessary liquidation, CoinEx has adopted a price protection mechanism for the index price and an anticipatory mechanism, that is, when the price of a single exchange fluctuates abnormally or when the market experiences extreme changes, the system will automatically adjust the components of the index price to ensure that it fluctuates within the normal range.
The rules are as follows:
1. Update frequency: The index price is updated every 5 seconds.
2. Connection issue: When the price of an exchange is not available for more than 1 minute, the weight of this exchange will be set to 0 and will be resumed until the next index update calculation.
3. Price deviation: If the latest market price obtained by any exchange deviates more than 10% from the last updated index price, the weight of this exchange will be set to 0 until the price is back to normal.
4. "Bottomline" mechanism: If all reference exchanges have triggered risk control and their weights turn 0, the latest transaction price in the CoinEx Spot market will be used as the Index Price until all return to normal.
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