Look at the NIFTY future beside the NIFTY index at any moment and the two numbers differ, usually by a few tens of points, with the future above. New traders read that as the market expecting a rise. It is not. The gap is the basis, and it exists because holding a future is not the same as holding the index: the buyer of a future does not tie up the cash, and does not receive the dividends. The cost of carry is the price of that difference, and it is why a future trades above spot on an ordinary day. Understanding cost of carry turns the basis from a curiosity into a readout, because once you know what the gap should be, its distance from that norm is information. This guide covers the arithmetic, the reading, and the two places the number misleads.
What cost of carry means
Imagine two ways of owning NIFTY for one month. The first is to buy the fifty stocks today, which costs the full index value now and pays you whatever dividends fall in the month. The second is to buy a one-month future, which costs a margin deposit now and the full value only at expiry, and pays no dividends. The second route saves you the interest on the money you did not have to put up, and loses you the dividends. For the two routes to be worth the same, the future has to cost more than the index by the interest saved, less the dividends missed. That difference is the cost of carry, and the future’s premium to spot is its expression in points.
If the future traded above that fair level, a trader could buy the stocks, sell the future and lock in more than the financing cost; if it traded below, the reverse. That arbitrage is what keeps the basis near the cost of carry most of the time. The basis is therefore not a forecast of where the index is going; it is a financing spread that positioning bends.
Basis, premium, discount and the annualised figure
The basis is the futures price minus the spot price, quoted in points and as a percentage of spot. Positive is a premium, the normal state; negative is a discount. Because the carry accrues over the time to expiry, a fair premium shrinks as expiry approaches and reaches zero on expiry day, when the future settles to the index close.
To compare a basis across different times to expiry, it is annualised. The Futures OI page uses the logarithm of the futures price over the spot price, times 365 divided by the days to expiry, in percent. A premium of 0.13 percent with 4.7 days left annualises to about 10.5 percent; the same 0.13 percent with 25 days left would annualise to about 2 percent. That is the whole reason the annualised figure exists: it puts a basis measured on day two of the month on the same footing as one measured in expiry week.
It also creates the first trap. As the days to expiry shrink toward zero, the multiplier grows without limit, and a basis of a few points that means nothing swings the annualised carry by whole percentage points. In the last few sessions of the contract, read the basis in points and percent and the percentile, and treat the annualised number as noise. The card in the screenshot shows exactly this: a thin premium of 30.9 points that annualises to a dramatic 10.46 percent purely because only 4.7 days remained.
What a fat premium and a discount have tended to mean
The basis sits near the cost of carry because arbitrage holds it there, but arbitrage has limits and costs, so positioning pushes the basis around within a band. A premium well above the fair carry says buyers of futures are paying up: leveraged longs want the exposure now and are willing to pay more than the financing cost for it. That has tended to appear in strong, crowded rallies, and a premium that stays rich while the index stalls is longs leaning on a market that has stopped rewarding them.
A discount, the future below spot, says the opposite: sellers of futures are pressing, or holders of stock are hedging by selling futures faster than arbitrage can absorb. Discounts have tended to appear in fearful markets and near lows, when hedging demand overwhelms carry. Because option dealers hedge index options in futures, the basis is also where their hedging pressure surfaces: a day of heavy hedging selling shows up as the future slipping toward or below the index. The dealer positioning guide explains where that pressure comes from.
The word “tended” is doing work in both paragraphs. A basis reading is context for what the futures crowd is doing, not a forecast, and it is only meaningful against its own history. That is what the percentile is for: today’s basis percentage ranked against the last sixty sessions. A premium in its 5th percentile, as in the screenshot, is unusually thin for the recent run; one in its 95th is unusually fat. Without that ranking, “the future is at a premium of forty points” is a number without a comparison.
The dividend-season trap
The cost of carry subtracts the dividends the index is expected to pay before expiry, and Indian companies pay most of theirs between February and May. Through that season the fair premium is structurally lower, and the future can trade at a discount to spot for weeks without anyone being bearish, simply because the stocks will pay out cash the futures holder will not receive. A discount in April reads very differently from a discount in October. The Futures OI page carries a footnote for this reason, and the percentile helps too, as the sixty-session window adapts to the season.
Reading the intraday basis path
The basis is not one number a day. The card charts it through the session from the first minute, and its path carries more than its level. A premium that widens steadily on a rally is longs paying up as the day goes on; one that collapses toward zero into a selloff is hedging pressure arriving in the futures. Two quick dips to zero on an otherwise steady day, as in the screenshot, are moments when futures selling briefly overwhelmed the carry and then eased. Read the path against the price line and against the build-up labels on the same page, which say whether open interest was being added or removed while the basis moved.
A worked reading
The index is up 0.8 percent by noon, the future is 70 points above spot with three weeks to expiry, and the basis percentile reads 92nd. Futures buyers are paying well over carry: a leveraged, crowded long that is bidding for exposure. If the same afternoon prints a long build-up on strong volume, the crowd is still growing. The mirror image, a discount in its 4th percentile during a selloff in October with a short build-up alongside, is hedging and short pressure overwhelming carry. Neither reading tells you what happens next; both tell you who is leaning on the market and how hard.
Where to read the cost of carry
The Futures OI page in OIData carries a basis and carry card for each index: the premium or discount in points and percent, the annualised carry, the days to expiry, the percentile against the last sixty sessions, the intraday basis path, and the dividend-season note. The build-up labels and session totals on the same page say what open interest was doing while the basis moved, and the rollover panel below carries the spread between the current and next month, which is the same carry seen across two contracts. The Session Chart shows the basis for the bar under the cursor beside the candles.
Cost of carry FAQ
What is cost of carry in futures? The financing cost of holding the underlying until expiry, less the dividends the holder of the future does not receive. It is why a future normally trades above spot, and the premium shrinks to zero by expiry.
What is the futures basis? The futures price minus the spot price, in points or as a percentage. A positive basis is a premium, a negative one a discount.
Why does the annualised carry look huge near expiry? Because the basis is multiplied by 365 over the days remaining. With a day or two left, a few points of basis annualise to whole percentage points. Use the points, the percentage and the percentile instead.
Is a discount to spot bearish? It has tended to accompany fearful markets and heavy hedging, but from February to May the dividend season drags index basis down without any bearish meaning. Read it against the season and the percentile.
Takeaways
- Cost of carry is interest saved less dividends missed; it is why futures trade above spot, and the basis is that carry in points.
- Annualising makes bases comparable across expiries, but it blows up in the last days of a contract.
- A fat premium has tended to be longs paying up; a discount has tended to be hedging or short pressure; the percentile says how unusual either is.
- February to May dividends lower the fair basis without being bearish.