Definition of Basis

Basis refers to the difference between the futures price and the current cash price of the same commodity.

Points to remember:

• In case of a futures market, basis is the cash price of the commodity traded minus its futures price.
• The change in relationship between the cash price and future price of the commodity affects the value of the futures as a hedge.
• Unless specified, the basis is generally calculated by using the price of the nearby futures contract month.