Reflect the cost of holding or preserving a commodity from one period to another, including storage space, interest and insurance. Storage cost is the actual expenditure paid for storing goods, which generally changes with time and region.
Extended data:
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 for hedging, the basis will be enlarged in hedging and flat position, 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.
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.
If the basis does not change at the beginning and end of hedging, investors may 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.
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