What does it mean to book the basis?

By Richard Wilson AAA
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.



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