Basis

Basis is the foundation from which an idea, argument, or process is derived. It also denotes their underlying support, or justification for or reasoning behind them.

In a futures market, basis is defined as the cash price (or spot price) of whatever is being traded minus its futures price for the contract in question. It is important because changes in the relationship between cash and futures prices affect the values of using futures as a hedge. A hedge, however, will always reduce risk as long as the volatility of the basis is less than the volatility of the price of whatever is being hedged.

Nearby pages
Basis of Allotment, Basis Point, Basis Risk, Basisthashram, Baskerville, Basket