Refer to ‣ also

Mark price: this is the futures price (you use this as a reference against the underlying)

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Essentially you SELL futures when it's at a contango, and simultaneously BUY the underlying at Spot and holding it to maturity to get the price difference profit.

You can do the reverse trade if its at backwardation.

Detailed example from: https://www.bitmex.com/app/futuresGuideExamples

Let’s consider a market where it is Monday at 12:00 UTC, the underlying spot market is trading at 0.0200 XBT and the BitMEX BCHZ20 futures contract is trading at 0.0220 XBT.

Firstly, let’s calculate what the basis is trading at. There are 4 days remaining on the contract. The nominal basis is (Futures Price - Spot Price) = 0.0220 - 0.0200 = 0.00020 XBT. The nominal % basis is (Futures Price / Spot Price) - 1 = (0.0220 / 0.0200) - 1 = a 10% premium.

This is equal to 10% / 4 days = 2.5% per day, or 912.5% annualised. This means that if the contract always traded at a 2.5% premium every day, then a trader could theoretically earn 912.5% each year. Why would the contract be trading at such a high premium?

This could be for several reasons: the underlying market is illiquid on the offer side, there is a short term price discrepancy on the futures market, or the market is more bullish in general on the future value of BCH.

How would the trader take advantage of this premium and lock in the basis? The trader could short or sell the contract at 0.0220 XBT, and at the same time go long or buy BCH on the spot market at 0.0200 XBT.

On BitMEX, one contract of BCHZ20 represents 1 BCH (the multiplier). Hence, the trader will buy and sell the same BCH amount on both markets. Let’s say that they want to trade 100 BCH. Then they will buy 100 BCH on the underlying spot market and sell 100 contracts of BCHZ20 which represents 100 BCH.

The trader would then wait until the markets reverted to the same price, or they would wait until settlement. In this example, the market kept trading at a premium up until settlement at 12:00 UTC on Friday and the trader chose to wait until settlement to close out the positions.

At 12:00 UTC on Friday, the 30-minute TWAP Settlement Price was equal to 0.0150 XBT and the underlying spot price was also 0.0150 XBT. Hence the trader lets his futures contract position expire at the settlement price and then close out his 100 BCH buy on the underlying spot market by selling 100 BCH at 0.0150 XBT.