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. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  2. Cash Price

    The actual amount of money that is exchanged when commodities ...
  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. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  6. Futures Contract

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