Is the futures basis high bullish or bearish?
Basis = spot price-futures price.
High futures basis means that the spot price is higher than the futures price, which is a bullish situation. Although a large basis indicates that futures are in a favorable market, it depends on the actual market to be long or short. If combined with after-hours analysis, the high basis of futures indicates the shortage of spot materials, which will lead to the shortage of market, so multiple futures contracts can be made.
If the basis of futures is negative and the absolute value of basis exceeds the holding cost, it will lead to arbitrage, thus correcting its unreasonable spread. If the basis is positive, the holding cost is negative, and the recent price is higher than the forward price. There is no upper limit for the price difference, depending on the degree of shortage.
What does the foundation mean?
Basis reflects the transportation cost and holding cost between the spot market and the futures market, and 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.
Basis is sometimes positive and sometimes negative. Therefore, basis is a dynamic indicator of actual operation changes between futures prices and spot prices. Investors can determine the subsequent investment situation by analyzing the basis difference.
Investors need to understand that the unilateral futures market is accompanied by high risks while generating high returns. Even if the basis regression is highly certain, it needs to be analyzed according to the market situation.