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. Which of the following would be considered a short hedge ...

    The correct answer is a) Long the commodity and short the futures Read Answer >>
  2. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Answer >>
  3. Do hedge funds invest in commodities?

    Learn about hedge funds that invest in commodities. Read about Commodity Trading Advisors who focus specifically on trading ... Read Answer >>
  4. How are commodity spot prices different than futures prices?

    Find out more about commodity spot and futures prices, how to calculate a commodity's futures price, and the differences ... Read Answer >>
  5. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  6. Why do companies enter into futures contracts?

    Learn how companies use futures contracts for the purposes of hedging their exposure to price fluctuations as well as for ... Read Answer >>
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