1. False. Although this is a hedge, it is not anticipatory. He already has a position.
  2. B. The basis is $1 under November rather than $2 under, so it is strong in historical terms.
  3. C. The others are false.
  4. B. The others are false.
  5. B.
  6. C. Basis describes the relationship between cash and futures prices. Margin is earnest money that a trader must put forth when entering a trade and has no impact on basis. All of the other items do.
  7. A. In a long hedge, the trader may need to lock in a favorable price for an item that he or she does not yet have in order to deliver a good to a client. Think of the miller who needs a good price on flour to be able to produce bread that he is to sell to customers.
  8. C. In a normal (contango) market, futures prices exceed cash prices.
  9. B. Due to the dynamic nature of basis where cash and futures prices move in the same direction, but not by the same amount, a hedge will not completely eliminate risk.
  10. A. Agricultural commodity contracts offer delivery of the good, but stock index futures must be cash settled as one cannot delivery an index.


Spread Trading

Related Articles
  1. Financial Advisor

    The Hidden Cost of Hedge Funds

    Are hedge funds worth the hype and exclusivity they exude? Let us take a closer look at what is involved when investing with one.
  2. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  3. Investing

    Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.
  4. Investing

    Crude Oil Prices: Comparing Future Price Vs. Current Market Price

    Discover the differences between oil futures market prices and oil spot market prices and what leads to the differences between the two.
  5. Investing

    Contango Versus Normal Backwardation

    It’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
  6. Trading

    Contango Vs. Normal Backwardation

    Learn about the futures curve and what its shape means for hedgers and speculators.
  7. Trading

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  8. Managing Wealth

    Commodities Relative Value

    In this special report, we take a close look at the hedge fund segment, considering key characteristics and performance trends, and offering our outlook for the rest of the year and beyond.
  9. Trading

    Sizing A Futures Trade Using Average True Range

    Futures trading is risky business, so it's crucial that traders' positions match the level of risk they are willing to bear.
  10. Personal Finance

    Should You Be A Financial Planner?

    Is a financial planning career right for you? Take this short quiz to find out. You might learn something about yourself.
Trading Center