Put simply, basis trading is the act of trading the perpetual and spot price of a cryptocurrency in order to gain various benefits. Basis is defined by the % difference of spot vs its perpetual futures price.
Spot is just the regular ‘cash’ price that you can purchase a crypto asset at. You can buy and then send the cryptocurrency to another exchange, lend it, use it as margin, or sell it in the future.
The method in which the spot price is pegged to the perpetual price is due to a mechanism called the funding rate. The funding rate will be fleshed out in this section.