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, that is, 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.

It can be seen that the basis difference in different regions varies with the transportation cost. But as far as the same market is concerned, the basis of different periods should fully reflect the holding cost in theory, that is, the basis of holding cost changes with time. The longer the futures contract expires, the greater the holding cost, and when it is very close to the contract expiration date, the spot price and futures price in a certain place must be close or equal.

We usually see more high-quality products, such as LME copper, CBOT beans and Singapore oil.

Premium refers to the change on this basis.