Trade · 6 pages · 12 min
Why basis is the gap between them
Basis is the local cash price minus the futures price, the gap those two markets leave.
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From the opening
Basis is the gap between the spot price of a commodity in a particular place and the futures price used as the reference. In grain it is usually quoted as cash minus futures, so a local bid can sit under or over the contract that is supposed to stand for the same crop. The opening covers cash minus futures, place and grade sit in the gap, and a hedge leaves basis risk.
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Inside
- Cash minus futures
- Place and grade sit in the gap
- A hedge leaves basis risk
- Convergence squeezes it at delivery
- Where the idea stops applying
- A distinction worth keeping
Sources
- Basis as cash minus futures
- Basis risk in a hedge