Basis theory holds that the futures price is the market's forecast value 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, if the basis remains unchanged at the beginning and end of hedging, it is possible to achieve complete 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 is divided into three market situations: negative, positive and zero:

Normal case of negative group of 1:

Under the normal relationship between supply and demand of commodities, the basis of holding cost and risk of reference price should generally be negative, that is, the futures price should be greater than the spot price of commodities.

2 Reversal market with positive foundation:

When there is a shortage of goods in the market, the spot price is higher than the futures price.

3 Zero basic market situation:

When the futures contract is closer to the delivery date, the basis is closer to zero.

Fundamental changes in favor of the hedger;

1 The futures price rises, the spot price remains unchanged, and the basis weakens. When the hedging transaction ends, additional profits can be obtained while hedging.

Futures prices remain unchanged, spot prices fall, and basis becomes weak. By ending the hedging transaction, you can gain extra profits while maintaining the value.

Futures prices rise, spot prices fall, and the basis is extremely weak. By ending the hedging transaction, you can make extra profits in both markets while maintaining the value.

Both futures prices and spot prices have risen, but the futures price has risen more than the spot price, and the basis has weakened. By ending the hedging transaction, you can gain additional profits while maintaining the value.

Both futures prices and spot prices fell, but the spot price fell more than the futures price, and the basis weakened. By ending the hedging transaction, you can gain extra profits while maintaining the value.

The spot price fell below the futures price, and the basis weakened. By ending the hedging transaction, you can gain additional profits while maintaining the value.

Fundamental changes conducive to the sale of hedging;

The futures price 1 fell, the spot price remained unchanged, and the basis became stronger. When the hedging ends, additional profits can be obtained at the same time.

Futures prices remain unchanged, spot prices rise and basis becomes stronger. When the hedging ends, additional profits can be obtained at the same time.

3 futures prices fell, spot prices rose, and the basis became extremely strong. When hedging ends, you can get extra profits in both markets at the same time.

Both the futures price and the spot price have gone up, but the spot price has gone up more than the futures price, and the basis has become stronger. By ending the hedging transaction, you can gain additional profits while maintaining the value.

Both the futures price and the spot price fell, but the futures price fell more than the spot price, and the basis became stronger. By ending the hedging transaction, you can gain extra profits while maintaining the value.

The spot price suddenly rose from below the futures price, and the basis became stronger. By ending the hedging transaction, you can gain additional profits while maintaining the value.

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.

Should be more detailed! Look at it carefully for a few times and you will understand!