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. Therefore, in theory, if the basis remains unchanged at the beginning and end of hedging, it is possible to 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. When the hedger fails to find a futures contract that completely matches the spot position in terms of variety, duration and quantity, when choosing a substitute contract for hedging operation, the basis risk arises because the cash flow cannot be completely locked. Edit the quality influencing factors in this paragraph. Because the futures contract stipulates the trading of commodities at the benchmark level, and the quality of actual spot transactions is often inconsistent with the level of futures contracts stipulated by the exchange, this quality difference is included in the basis difference. The commodity delivery place stipulated in the futures contract of regional futures exchange is the standard delivery place designated by the exchange, but the actual spot transaction delivery place is often different from the delivery place designated by the exchange. Therefore, the freight difference between the two delivery places has created a certain foundation. Time Because the delivery time of spot transactions is often inconsistent with the delivery month of futures, there is a time difference between futures prices and spot prices. The basis of time influence is mainly reflected in the storage cost, which includes storage cost, insurance premium and interest. In different parts of the spot market, the size of the basis is often fixed in a certain range; Traders can judge the forward spot price by predicting the basis and combining the futures price. Edit the influence of market conditions in this paragraph on the market. Figure 1 basis is divided into negative, positive and zero market conditions: 1 basis is negative. Under the normal relationship between supply and demand of commodities, the basis should generally be negative, that is, the futures price should be greater than the spot price of commodities. Reverse market conditions with positive basis: when the supply of goods in the market is in short supply, the spot price is higher than the futures price. 3 Zero basis market situation: As the futures contract approaches the delivery date, the basis is getting closer to zero. The impact on hedging is beneficial to hedgers: 1 The futures price rises, the spot price remains unchanged, and the basis weakens. When the hedging transaction is over, additional profits can be obtained at the same time of hedging. Futures prices remain unchanged, spot prices fall, and basis becomes weak. By ending the hedging transaction, you can gain extra profits while maintaining the value. Futures prices rise, spot prices fall, and the basis is extremely weak. By ending the hedging transaction, you can make extra profits in both markets while maintaining the value. Both futures prices and spot prices have risen, but the futures price has risen more than the spot price, and the basis has weakened. By ending the hedging transaction, you can gain extra profits while maintaining the value. Both futures prices and spot prices fell, but the spot price fell more than the futures price, and the basis weakened. By ending the hedging transaction, you can gain extra profits while maintaining the value. The spot price fell below the futures price, and the basis weakened. By ending the hedging transaction, you can gain additional profits while maintaining the value. The basis affects the basis change. Figure 2 is conducive to selling hedging: the futures price 1 falls, the spot price remains unchanged, and the basis becomes stronger. Hedging is over, and additional profits can be obtained at the same time. Futures prices remain unchanged, spot prices rise and basis becomes stronger. When the hedging ends, additional profits can be obtained at the same time. 3 futures prices fell, spot prices rose, and the basis became extremely strong. When hedging ends, you can get extra profits in both markets at the same time. Both the futures price and the spot price have gone up, but the spot price has gone up more than the futures price, and the basis has become stronger. By ending the hedging transaction, you can gain additional profits while maintaining the value. Both the futures price and the spot price fell, but the futures price fell more than the spot price, and the basis became stronger. By ending the hedging transaction, you can gain extra profits while maintaining the value. The spot price suddenly rose from below the futures price, and the basis became stronger. By ending the hedging transaction, you can gain additional profits while maintaining the value. Edit the basic information section in this paragraph. According to the absolute value of basis, the different changes of basis in the above two markets can be divided into the following two situations: 1 and the basis becomes larger. Spot price-the absolute value of futures price is getting farther and farther away from zero; 2. The basis becomes smaller. Spot price-the absolute value of futures price is getting closer to zero. The relationship between the increase and decrease of basis and hedging profit and loss is as follows: in zinc period, basis is positive (+) to the market, basis increases (+), hedging purchase (+) and profit (+); Forward market (+), basis becomes larger (+), hedging selling (-), loss (-); Positive market (+), basis becomes smaller (-), hedge buying (+), loss (-); Forward market (+), basis becomes smaller (-), hedge selling (-), and profit (+). Reverse market (-), large basis (+), buy hedge (+), loss (-); Reverse market (-), basis becomes larger (+), hedge selling (-), and profit (+); Against the market (-), the basis becomes smaller (-), hedge buying (+), and gain (+); Reverse market (-), basis becomes smaller (-), hedge selling (-), loss (-). According to the trend of basis, we can divide the different changes of basis in the above two markets into the following two situations: 1 and basis strengthening. In the forward market, the absolute value of spot price-futures price is getting closer to zero; In the reverse market, the absolute value of commodity prices-futures prices are getting farther and farther away from zero; Or from the forward market to the reverse market. 2. The foundation is weak. In the forward market, the absolute value of spot price-futures price is getting farther and farther away from zero. In the reverse market, the absolute value of commodity price-futures price is getting closer to zero; Or from the reverse market to the forward market. The relationship between basis strength and hedging profit and loss is as follows: positive market (+), basis strength (-), hedging (+) and loss (-); Positive market (+), strong basis (-), selling hedge (-), profit (+); Positive market (+), weak basis (+), hedging (+), profit (+); Positive market (+), weak basis (+), selling hedge (-), loss (-); The forward market becomes a reverse market (+), with a stronger basis (-), hedging buying (+) and loss (-); The forward market becomes a reverse market (+), the basis is stronger (-), hedging is sold (-), and the profit is (+); Reverse market (-), basis strength (+), buy hedge (+), loss (-); The situation is divided into adverse market (-), strong basis (+), selling hedging (-) and profit (+); Against the market (-), weak base (-), buy hedge (+), profit (+); Reverse market (-), basis weakening (-), selling hedging (-), loss (-); The reverse market becomes a positive market (-), the basis weakens (-), hedging buys (+) and gains (+); Reverse market becomes positive market (-), basis becomes weak (-), hedging sells (-), and losses (-). Edit the composition basis of this paragraph, which is positive, negative or zero. Basis is composed of many factors, such as freight, Chicago grain futures price, transportation distance, local supply and demand, miscellaneous fees/profits of other trade, etc. Simply put, it represents the price difference between different physical locations. Because the basis reflects the local price level, it is directly affected by the following factors: transportation cost, local supply and demand, food quality and quantity demand, weather, interest and storage cost. For example, China Oil Factory orders American soybeans, and the shipment date is 1 1. The price of American Gulf soybeans is 40+SX3 (or 40 cents per bushel +CBOT 1 1), and 40 is the FOB base price on the shipment date1/kloc-. This is FOB. If you quote CIF China, you should also add the sea freight and other expenses. Each basis does not exist independently and must correspond to the corresponding futures contract one by one. At the moment when the buyer and seller clinch the basis, theoretically the basis plus the corresponding futures price at that time should be equal to the actual quotation at that time. For example, the price of American soybeans arriving at China port in June 1 10 cents, corresponding to Chicago soybean futures in June 1 10, plus 526, multiplied by 0.367437, the actual price is $270. The relationship between basis change and hedging In the process of real commodity price movement, basis is always changing, and the form of basis change is very important for a hedger. 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. For the hedger, what he wants to see is the narrowing of the basis. 1, both spot price and futures price have increased, but the increase of spot price is greater than the decrease of futures price, and the basis has widened, which makes the loss of processors buying spot in the spot market greater than the profit of selling futures contracts in the futures market. If the prices in the spot market and the futures market fall instead of rising, then the processors will make profits in the spot market and lose money in the futures market. But as long as the basis is enlarged, the profit of the spot market can not only make up for the loss of the futures market, but also lead to a net loss. 2. Both the spot price and the futures price have gone up, but the increase of the spot price is less than the decrease of the futures price, and the basis is reduced, so that the loss suffered by the processor when buying the spot in the spot market due to the price increase is less than the profit when selling the futures contract in the futures market due to the price increase. If the prices in the spot market and the futures market fall instead of rising, then the processors will make profits in the spot market and lose money in the futures market. But as long as the basis is reduced, the profit of the spot market can not only make up for all the losses in the futures market, but also make a net profit. For the hedging seller, the basis chart of the main contract of copper spot to futures, for the hedging seller, what he wants to see is the basis expansion. 1, the spot price and futures price both fell, but the spot price fell more than the futures price, and the basis was enlarged, thus making the loss of selling spot in the spot market greater than the profit of buying futures contracts in the futures market. If the prices in the spot market and the futures market rise instead of falling, traders will make profits in the spot market and lose money in the futures market. However, as long as the basis is enlarged, the profit of the spot market can only make up for some losses in the futures market, and the result is still a net loss. 2. Both the spot price and the futures price have declined, but the decline of the spot price is less than that of the futures price, and the basis is reduced, which makes the losses suffered by traders in selling the spot due to the decline of the spot market price less than the profits gained by buying futures contracts due to the decline of the futures market price. If the spot price and futures price do not fall but rise, the banker will make a profit in the spot market and lose in the futures market. But as long as the basis is reduced, the profit of the spot market can not only make up for all the losses in the futures market, but also have a net profit. The change trend of futures price and spot price is consistent, but the time and range of price changes are not completely consistent, that is to say, at a certain moment, the basis is uncertain, and the hedger must pay close attention to the change of basis. Therefore, hedging is not a once-and-for-all thing, and adverse changes in basis will also bring risks to hedgers. Although hedging can't provide complete insurance, it does avoid the price risk related to the business. Hedging is basically a risk exchange, that is, price fluctuation risk exchanges basis fluctuation risk. Edit the basic risk of paragraph 1. Changes in the basis level and future convergence of futures prices relative to spot prices during hedging transactions. Due to arbitrage factors, futures prices are generally close to the spot price on the delivery date, that is, the basis is about zero. Therefore, the level of basis, the trend of basis change and the time of hedging liquidation determine the risk and profit and loss of hedging. Second, the factors that affect the cost of holding change. Theoretically, the futures price is equal to the spot price plus the holding cost, which mainly includes storage cost, insurance cost, capital cost and loss. If the holding cost changes, the basis will also change, thus affecting the profit and loss of the hedging portfolio. 3. The mismatch between the hedging risk assets and the underlying assets of the hedging futures contract. There was no soybean oil futures contract in China before 2006. Because of the high correlation between soybean price and soybean oil price fluctuation, soybean oil producers or consumers use domestic soybean futures contracts to hedge soybean oil prices, which is called cross hedging. The basis risk of cross hedging is the biggest, because its basis consists of two parts, one part comes from the difference between the futures price and the spot price of the hedged asset, and the other part comes from the difference between the spot price of the hedged asset and the spot price of the hedged asset. Because the hedged risk assets are different from the underlying assets of the hedged futures contract, the basic factors affecting the price change are also different, resulting in a relatively high basis risk of cross hedging. 4. Random disturbance of futures price and spot price. Due to the above four reasons, during the holding period of the hedging portfolio, the basis continues to expand or shrink, which makes the hedging portfolio generate profits and losses. Under normal market conditions, because the factors affecting the spot price of assets are the same as the futures price, the fluctuation range of the hedging basis is relatively small and stable in a fixed fluctuation range, and the profit or loss of the hedging portfolio generated within this fluctuation range is small, so it will not have much impact on the effectiveness of hedging. However, in some special cases, there will be abnormal situations that are not conducive to hedging in the market, which will lead to the continuous expansion or contraction of the basis of hedging, resulting in increasing losses of hedging portfolio. If the stop loss is not stopped in time, it will cause huge losses to the hedger. In terms of probability, the abnormal basis biased towards the normal basis level is a small probability event, but if the risk of this small probability event is not handled properly, hedging will cause huge losses.