Basis consists of two components, namely "time" and "space", which separate the spot market from the futures market. So the basis includes the transportation cost and holding cost between the two markets. The former reflects the spatial factors between the spot market and the futures market, which is the basic reason why the basis difference between the two different places is different at the same time; The latter reflects the time factor between the two markets, that is, the holding cost of two different delivery months, and also includes storage fee, interest, insurance premium, loss fee, etc., among which the change of interest rate has a great influence on the holding cost.
Basis risk refers to the risk caused by the unsynchronized price fluctuation between the hedging instrument and the hedged commodity. Basis is the difference between spot transaction price and exchange futures price, and its amount is not fixed. The fluctuation of basis brings inevitable risks to hedgers and directly affects the hedging effect, especially when using alternative varieties for hedging.