Basis Definition & Meaning | Financial Term | CSIMarket
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Glossary

Basis

Financial Term

Basis refers to the difference between the spot price of a commodity or an asset and its futures contract price. In simpler terms, Basis measures the difference between the price of the actual underlying asset (such as a stock or commodity) and the price agreed upon in a futures contract to buy or sell that asset at a future date.

In the financial industry, Basis is commonly used in the trading of futures contracts. Traders use Basis to estimate the future price of an asset and to determine whether the futures contract is overvalued or undervalued. When the Basis is positive, it means that the spot price is higher than the futures price, indicating that the market expects the price of the asset to rise in the future. Conversely, when the Basis is negative, it means that the spot price is lower than the futures price, indicating that the market expects the price of the asset to fall in the future.

Investors and traders can use Basis to make informed trading decisions. For instance, if they believe that the Basis is too high, they can purchase futures contracts in anticipation of a price increase. Conversely, if they believe that the Basis is too low, they can sell futures contracts in anticipation of a price decrease. By closely monitoring the Basis, investors can get a better understanding of market sentiment and volatility, which can help them to make more informed investments in the future.


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