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Explanation of basic difference nouns
Basis refers to the difference between the spot price and futures price of a specific commodity at a specific time and place.

Basis refers to the difference between the spot price of the hedged asset and the price of the futures contract used for hedging. Since both the futures price and the spot price will fluctuate, the basis will also fluctuate during the validity period of the futures contract. The uncertainty of basis is called basis risk. The key to reduce basis risk and realize hedging is to choose a highly matched hedging futures contract.

When hedging a flat position, the basis risk is directly related to the basis. When investors hold short positions in spot and futures to hedge, the basis will expand on the hedging day and the flat warehouse day, and investors will make a profit. On the contrary, when an investor will buy an asset in the future and hold a long future positions for hedging, and the basis on the hedging settlement date will expand, the investor will lose money.

Basis is the difference between the spot price and the futures price of a specific commodity at a specific time and place. Its calculation method is the spot price minus the futures price. If the spot price is lower than the futures price, the basis is negative; The spot price is higher than the futures price and the basis is positive. The connotation of basis is determined by the difference between transportation cost and holding cost between spot market and futures market.

In other words, the basis includes two components: time and space, and the transportation cost reflects the time factor between the spot market and the futures market. That is, the holding cost between two different delivery months reflects the holding cost or preservation cost of a commodity from one time period to another, including storage space, interest, insurance premium and so on.

Storage cost is the actual expenditure paid for storing goods, which generally changes with time and region; Interest is the capital cost needed to store goods, and the interest cost will change with the increase of interest rate; Insurance cost is the cost of storing goods for insurance. The basis reflecting the holding cost changes with time; The longer the time, the greater the holding cost. Since the futures contract is only deliverable, the seller should deliver the goods to the buyer after the expiration.