Basic difference = spot price - futures price

In the forward market, the absolute value of the spot price - futures price becomes closer and closer to the zero value; in the reverse direction In the market, the absolute value of the spot price-futures price becomes farther and farther away from the zero value; or it changes from a forward market to a reverse market.

1. The basis is strengthening. In the forward market, the absolute value of the spot price-futures price becomes closer and closer to the zero value; in the reverse market, the absolute value of the spot price-futures price becomes closer and closer to the zero value. far; or from a forward market to a reverse market.

2. The basis weakens. In a forward market, the absolute value of the spot price-futures price becomes farther and farther away from zero. In a reverse market, the absolute value of the spot price-futures price becomes closer and closer to zero; or it changes from a reverse market to a forward market.

The relationship between the strengthening and weakening of the basis and the profit and loss of hedging is represented by the following twelve situations:

Positive market (+), the basis is strengthening (-), Buy to hedge (+), loss (-);

Positive market (+), basis strengthens (-), sell to hedge (-), profit (+);

Positive market (+), basis weakening (+), buy to hedge (+), profit (+);

Positive market (+), basis weakening (+), sell to hedge (-), lose (-);

Forward market turns into reverse market (+), basis strengthens (-), buy to hedge (+) , loss (-);

The forward market turns into a reverse market (+), the basis strengthens (-), sells for hedging (-), and profits (+);

Inverse market (-), basis strengthened (+), Sell ??to hedge (-), profit (+);

Reverse market (-), basis weakens (-), buy to hedge (+), profit (+);

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Inverse market (-), basis weakening (-), sell to hedge (-), loss (-);

Inverse market becomes positive market (-) ), the basis weakens (-), buys for hedging (+), profits (+);

The reverse market becomes a forward market (-), the basis weakens (-), Sell ??to hedge (-), lose (-).

Point price trading means that when the spot buyer and seller determine the spot buying and selling price, they do not determine a clear price, but a pricing formula. This formula is

"Spot buying and selling price = futures price + premium and discount"

Usually when signing a sales contract, the premium and discount are determined first, and then the buyer can determine the premium and discount in a subsequent period of time (price point period), based on The price is selected based on changes in the futures price. For example, one day after signing the contract, the buyer believes that the current futures price can no longer fall, so he notifies the seller and uses the futures price at this time to calculate the spot buying and selling price. This is The process of pricing.

Usually, the price point period is determined by the seller. Of course, there are also times when the buyer determines it. This depends on the negotiation capabilities of both parties.

The buyer must mark the price within the price marking period, otherwise the seller must calculate the spot buying and selling price based on the established price or the futures price at the last moment, which is called forced price marking. The function of price point is to give the buyer an opportunity to choose the price.

It can be seen from the above-mentioned twelve ways of basis difference performance: for the buyer, the further back in the price point period, the greater the profit.