Narrow Basis

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Equilibrium

    The state in which market supply and demand balance each other ...
  2. Wide Basis

    A condition found in futures markets in which the spot price ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Basis

    1. The variation between the spot price of a deliverable commodity ...
  5. Forward Rate

    A rate applicable to a financial transaction that will take place ...
  6. Futures Contract

    A contractual agreement, generally made on the trading floor ...
Related Articles
  1. Trading Strategies

    Market Strength Tutorial

    Here you can learn about some of the indicators that traders and brokers use to determine the direction and strength of the market's present trend.
  2. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  3. Chart Advisor

    Cocoa Prices Setting Up For A Move Lower

    Cocoa prices have been trending lower over the past several months and the recent bearish crossover between the 50-day and 200-day moving averages suggest that the long-term downtrend is gaining ...
  4. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  5. Options & Futures

    Futures Quotes Explained The "Easy" Way

    If there’s a security whose price fluctuates, there can theoretically be a futures marketplace for it.
  6. A commodity is a basic good used in commerce.
    Markets

    What are Commodities?

    A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
  7. Options & Futures

    Why is the Accumulative Swing Index helpful for traders and/or investors?

    Find out why J. Welles Wilder believed that the accumulative swing index could be used in the futures markets to indicate long-term trends.
  8. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  9. Options & Futures

    The Potential Of Low-Priced Options

    The benefits of trading low-priced options, and learning how to pinpoint them, can be a very profitable strategy for an options trader.
  10. Chart Advisor

    Traders Fight To Push Corn Prices Higher

    With corn down some 60% since its 2012 high, a recent bounce higher was welcome. But several key resistance levels are suggesting a continued downtrend.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center