Short The Basis

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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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Basis

    1. The variation between the spot price of a deliverable commodity ...
  2. Commodity

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

    Making an investment to reduce the risk of adverse price movements ...
  4. Cash Price

    The actual amount of money that is exchanged when commodities ...
  5. Futures Contract

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

    The action by which an underlying commodity, security, cash value, ...
RELATED FAQS
  1. 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 >>
  2. How do commodity spot prices indicate future price movements?

    Commodity spot prices indicate future price movements because commodity futures prices are calculated using spot prices. ... Read Full Answer >>
  3. Where did market to market (MTM) accounting come from?

    Mark to market accounting has been around in concept since the stock market began; however, it was not officially part of ... Read Full Answer >>
  4. Why is market to market (MTM) accounting considered controversial?

    Mark to market accounting has been an integral component of generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  5. What is the difference between economic value and market value?

    The difference between market value and economic value is that the former represents the minimum amount the customer is willing ... Read Full Answer >>
  6. How do I set a strike price for a future?

    Strike prices can be set for put and call options, but investors engaged in futures contracts are obligated to trade the ... Read Full Answer >>
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