Short The Basis

DEFINITION of 'Short The Basis'

A futures strategy involving the purchase of a futures position to hedge against a future commitment to deliver the underlying commodity.

BREAKING DOWN 'Short The Basis'

Opposite to a short hedge, shorting the basis implies that the investor will be taking a short position in the commodity and a long position in the futures contract. This strategy is used to hedge a position by locking in a future spot or cash price and thereby removing the uncertainty of rising prices.

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RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
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    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. Can mutual funds invest in options and futures? (RYMBX, GATEX)

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