Align instrument and time
This is a hypothetical basis review. A spot index, tradable spot, and futures settlement may use different constituents or timestamps. Confirm the underlying, expiry, settlement, and annualisation before interpreting the spread.
List every carry input
Financing, borrow, custody, fees, margin use, and counterparty limits shape attainable return. Missing one input can make the displayed basis look better than the position.
- Source of cash and collateral.
- Margin calls and liquidation path.
- Delivery or roll cost.
- Transfer and settlement time across venues.
Ask why the spread exists
Directional demand, hedging, balance-sheet limits, and venue segmentation can all create basis. They imply different convergence speeds and failure modes. “Arbitrage will close it” is usually an incomplete explanation.
Keep the sources of P&L separate
The result of a basis position can combine spread convergence, changing financing cost, and mark-to-market movement in both legs. One net figure cannot show whether the original view worked or execution cost took control.
A review should follow accrued carry, collateral use, and realised slippage through time. Even when the spread eventually moves as expected, interim funding needs may determine whether the position can remain open.
- Spread movement and accrued carry.
- Spot financing or borrow cost.
- Margin and collateral use.
- Execution difference between the two legs.
Exit deserves the same attention as entry
A large position may not unwind both legs together. Record staged execution, further basis widening, and a sudden loss of liquidity in the review.