Hedging can generally offset the risk of price fluctuation in the spot market, but it cannot completely eliminate the risk, mainly because of the "basis difference" factor. In order to deeply understand and apply hedging and avoid price risk, we must master the foundation and its basic principles. Basis Basis means the difference between futures prices, that is, basis = spot price-futures price. For example, on May 30th, 2003, the spot price of soybean in Dalian was 2700 yuan/ton, and on that day, the price of soybean 1 futures contract in July, 2003 was 2620 yuan/ton, so the basis was 80 yuan/ton. Basis can be positive or negative, depending on whether the spot price is higher or lower than the futures price. If the spot price is higher than the futures price and the basis is positive, it is also called forward discount or spot premium; If the spot price is lower than the futures price, the basis is negative, which is also called forward premium or spot discount. Basis consists of two components, namely "time" and "space", which separate the spot market from the futures market. So the basis includes the transportation cost and holding cost between the two markets. The former reflects the spatial factors between the spot market and the futures market, which is the basic reason why the basis difference between the two different places is different at the same time; The latter reflects the time factor between the two markets, that is, the holding cost of two different delivery months, and also includes storage fee, interest, insurance premium, loss fee, etc., among which the change of interest rate has a great influence on the holding cost. The change of basis is always changing in the process of real commodity price movement, and the change form of basis is very important for hedgers. When the futures contract expires, the spot price and futures price tend to be consistent, and the basis changes seasonally. Hedgers can use the futures market to reduce the risk of price fluctuation. The change of basis is the basis for judging whether hedging can be fully realized. Hedgers can not only get better hedging effect by taking advantage of the favorable change of basis, but also get extra surplus through hedging transactions. Once the basis changes adversely, the effect of hedging will be affected and suffer certain losses.

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