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.

  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Basis

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

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

    The action by which an underlying commodity, security, cash value, ...
  5. Futures Contract

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

    The actual amount of money that is exchanged when commodities ...
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  1. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  4. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  5. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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