Long The Basis

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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".

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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 >>
  4. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
  5. What types of corporations would be expected to have higher growth rates than more ...

    Investors looking for corporations with higher-than-average growth rates have several factors to consider. Although younger ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
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