A:

A book-the-basis contract is the same as a hedge-to-arrive contract (HTAC). Both have been used widely since the earlier 1990s. The four types of hedge-to-arrive contracts can range from straightforward to relatively complex and risky. In addition, some can be far riskier than typical speculation in the futures market. The four types of hedge-to-arrive contracts are: non-roll, intra-year rolling, inter-year rolling (which involves one year of production), and multi-year rolling.



These contracts allow the seller to set the futures level on the contract date, while also permitting the seller to decide the basis level at a later time. These permissions, in effect, transfer risk from the seller to the buyer on the stipulated contract date.



This question was answered by Richard C. Wilson.



RELATED FAQS
  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Answer >>
  2. What does it mean to roll a derivative contract?

    Find out more about derivative securities, how to roll forward a derivative contract and what it means when a derivative ... Read Answer >>
  3. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  4. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  5. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Answer >>
  6. What is a wild-card play?

    A wild-card play is a term related to futures contracts. A future is a financial contract obligating a buyer to purchase, ... Read Answer >>
Related Articles
  1. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  2. Investing

    Introduction To Currency Futures

    The forex market is not the only way for investors and traders to participate in foreign exchange.
  3. Investing

    Is USO a Good Way to Invest in Oil?

    The United States Oil Fund is better suited to short-term investors who actively manage their portfolios.
  4. Investing

    What is a Forward Contract?

    A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
  5. Financial Advisor

    Divorce and Annuities: What Clients Need to Know

    Divorce can be the most financially devastating event in a person’s life. Here’s what your clients need to know about handling annuities in a divorce case.
  6. Investing

    How to Trade Futures Contracts

    Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
RELATED TERMS
  1. Long Dated Forward

    A type of forward contract commonly used in foreign currency ...
  2. Futures

    A financial contract obligating the buyer to purchase an asset ...
  3. Contract Size

    The deliverable quantity of commodities or financial instruments ...
  4. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  5. Form 6781: Gains And Losses From Section 1256 Contracts And Straddles

    A tax form distributed by the Internal Revenue Service (IRS) ...
  6. Fixed Income Forward

    A contract to buy or sell a fixed income security in the future ...
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center