In the futures market, if the spot price is lower than the futures price, the basis is negative, and the forward futures price is higher than the recent futures price. This situation is called "futures premium", also known as "spot discount", and the part where the forward futures price exceeds the recent futures price is called "premium". If the forward futures price is lower than the recent futures price and the spot price is higher than the futures price, the basis is positive, which is called "futures discount" or "spot premium". The part where the forward futures price is lower than the recent futures price is called "futures discount rate". The concept of basis refers to the difference between the spot price of a specific commodity at a specific time and place and the futures price of the commodity in the futures market, namely:
Basis = spot price-futures price.
Basis consists of two components, namely "time" and "space" between spot and futures markets. The former reflects the time factor between the two markets, that is, the holding cost of two different delivery months, including storage fee, interest, insurance premium and loss fee, in which the change of interest rate has a great influence on the holding cost; The latter reflects the spatial factors between the spot market and the futures market. Basis includes transportation cost and holding cost between two markets. This is also the basic reason why two different locations have different basis differences at the same time.
At present, there is no futures market and spot market in the United States, which we often say in academic circles. The actual situation is that the price formed by the futures exchange is the benchmark price of spot circulation, which is just a logistics system. Due to the differences in origin and quality, both parties need to talk about a premium of futures price when trading spot, namely:
Transaction price = futures price+premium.
In other words, futures market and spot market are just a distinguishing concept in academic research. In practice, they are a whole market. Only when futures pricing and spot logistics play an organic role can the market mechanism operate normally.
In addition, futures prices are also divided into near and far month contracts. If the price of the far-month futures contract is higher than that of the near-month contract, the far-month premium of the near-month contract will increase. On the other hand, the distant moon is close to the recent month. From another angle, that is, from recent months to distant months, the same is true.
Therefore, after understanding this relationship, we can generally look at premium and discount in this way: A is the standard, and B is relative. If its value (usually expressed as price) is higher, it is a premium, and vice versa.
For example, the delivery standard of fuel oil specified by Shanghai Futures Exchange is 180CST high-sulfur fuel oil. If the seller's enterprise does not have this standard fuel oil for the time being, it will be replaced with a higher standard imported low-sulfur fuel oil 180, which is a premium compared with the former; If the previous system allows other lower-grade fuels to be transported, it is a discount compared with the standard.