What is basis in futures market?

In the futures market, basis represents the difference between the cash price of the commodity and the futures price of that commodity. It is a critically important concept for portfolio managers and traders to grasp because the relationship between cash and futures prices affects the value of the contracts used in hedging.

What is a basis in trading?

In another context, basis refers to the variation between the spot price of a deliverable commodity and the relative price of the futures contract. Basis may also be used in reference to securities transactions. Simply put, a security's basis is its purchase price after commissions or other expenses.

Why is basis important?

Basis has important tax implications because it represents the costs associated with a product. In another context, basis refers to the variation between the spot price of a deliverable commodity and the relative price of the futures contract. Basis may also be used in reference to securities transactions.

What is the basis of a cash market asset?

Basis can be defined as the difference between the spot price of a given cash market asset and the price of its related futures contract. There will be a different basis for each delivery month for each contract.