Long The Basis

AAA

DEFINITION of 'Long The Basis'

An individual or company that owns or has purchased a commodity such as oil, gold or lumber and then hedges its position by selling futures contracts on the commodity owned. This gives commodity holders a guaranteed price that they can sell their commodities at if the market price moves against their underlying position.

INVESTOPEDIA EXPLAINS 'Long The Basis'

By definition, a gold-mining company maintains a significant position in the precious metal. However, because the price of gold is susceptible to market pressures and may fluctuate wildly at times, the company may choose to hedge its position (through the sale of futures contracts) and thus lock in a guaranteed range of value. An individual or company that does this (owns the physical commodity and hedges their position) is said to be "long the basis".

RELATED TERMS
  1. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  2. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  3. Naked Position

    A securities position that is not hedged from market risk. Both ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
RELATED FAQS
  1. What is the difference between hedging and speculation?

    Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying ... Read Full Answer >>
  2. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Full Answer >>
  3. 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 Full Answer >>
Related Articles
  1. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  2. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  3. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  4. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  5. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  6. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  7. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  8. Chart Advisor

    Now Is The Time To Trade Industrial Metals

    Traders are turning their attention to large-cap industrial metals companies because a rebound in the global markets will likely send share prices of the underlying metals higher.
  9. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  10. Options & Futures

    A Quick Guide for Futures Quotes

    Here is a quick guide to futures quotes.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center