Spread moves against you
Convergence trades can diverge first. Mark-to-market pain is real even when the thesis is right, and basis entry is not a guaranteed exit.
Divergence before convergence
A basis trade earns if the gap closes. Nothing forces it to close on your schedule. The same flow that opened a 1% gap can push it to 2% — a delisting rumor hardens, a liquidation cascade extends, the thin venue keeps getting hit in one direction. You are mark-to-market negative on the pair while waiting for a reversion that arrives late or not at all.
Mark-to-market pain vs settlement income
The two-leg position is price-neutral on the asset, not on the spread. Your P&L is the spread itself:
- Funding trades: income arrives at settlements, in steps. Between settlements, basis moves mark the position up or down continuously. A trade collecting 0.5%/8h can sit 2% underwater on basis — solvent in expectation, but the margin requirement is computed on the mark, today.
- Basis trades: there is no income leg. Until convergence, the position is only the mark. Divergence is not noise on the way to profit; it is the loss, realized whenever you stop waiting.
The practical failure mode is running out of patience or margin at maximum divergence — closing at the worst mark, then watching the gap close without you.
Entry basis is not exit basis
The Spread page quotes basis two ways: at entry (cross the books now, VWAP at your size) and at exit (unwind at the other side of both books). They differ by two bid-ask spreads plus depth. On thin pairs the round trip through both books can cost more than the visible gap — the trade was never there at executable prices, only at mids.
Convergence of mids also does not guarantee convergence of your prices: if depth on the rich venue collapses while the gap closes, exiting the short there eats the gain.
Sizing against divergence
- Decide the maximum divergence you can carry — in margin terms, not conviction terms — before entry.
- Prefer pairs where convergence has an anchor (spot × perp; see Basis arbitrage) when the trade is the gap itself.
- Check open interest: a gap with OI still rising is being pushed; a gap with OI falling is unwinding. The OI panel on the Spread page shows the change over recent windows.