Theoretically, the futures price is the market's forecast of the future spot market price, and there is a close relationship between them. Due to the similarity of influencing factors, futures prices and spot prices often show a relationship of ups and downs; However, the influencing factors are not exactly the same, so the changes of the two are not completely consistent, and the relationship between spot price and futures price can be described by basis. Basis is the difference between the spot price of a commodity in a specific place and the price of a specific futures contract of the same commodity, that is, basis = spot price-futures price. The basis is sometimes positive (called the inverse market) and sometimes negative (called the positive market). Therefore, the basis is a dynamic indicator of the actual operation change between the futures price and the spot price.
The change of basis directly affects the effect of hedging. From the principle of hedging, it is not difficult to see that hedging actually replaces the risk of price fluctuation in the spot market with basis risk. Therefore, in theory, it is possible to achieve complete hedging if the basis remains unchanged at the beginning and end of hedging. Therefore, the hedger should pay close attention to the change of basis and choose favorable opportunity to complete the transaction.
At the same time, the fluctuation of basis is relatively stable than that of futures price and spot price, which provides favorable conditions for hedging transactions; Moreover, the change of basis is mainly controlled by holding cost, which is much more convenient than directly observing the change of futures price or spot price.
Basis refers to the difference between the spot price and futures price of the same variety at the same time and place. Due to the futures price and spot price
Both of them fluctuate, and the basis also fluctuates during the validity of the futures contract. The uncertainty of basis is called basis risk. use
The goal of futures contract hedging is to make the basis fluctuation zero, and the positive deviation between the ending basis and the opening basis makes the investment not only
Hedging can also be profitable; Negative deviation is a loss, indicating that hedging has not been fully realized.