Narrow Basis

DEFINITION of 'Narrow Basis'

A condition found in futures markets in which the spot price of underlying commodities is close to the futures price of the same contract.

BREAKING DOWN 'Narrow Basis'

A narrow basis suggests that the market is efficient, as the supply of and demand for the underlying commodity are in equilibrium.

The spot price and futures price should converge at maturity of the futures contract. If they don't, there is an arbitrage opportunity.

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