Basis is the difference between spot price and futures price, and basis risk is the risk that basis exceeds the normal range.

For example, in mid-2009, a large-scale flood disaster occurred in Pakistan, the main cotton producing area, and the basis difference changed beyond the normal range. At this point, enterprises face great risks when hedging. Therefore, in order to avoid this situation, enterprises should do a detailed stop-loss process, otherwise, the loss will be great.