1. Definition of basis.
*Basis is the difference between the spot of a commodity or asset at a particular time and place and a contract for that commodity or asset. In a nutshell, the basis is the difference between spot and spot.
Second, the change in the basis.
Basis may change over time, location, market conditions, and supply and demand. For example, when the inventory of a particular commodity decreases, the spot **may**, causing the basis to widen; Conversely, when inventories increase, spot **may**, causing the basis to shrink. In addition, the expiration date of the contract also affects the size of the basis, as the contract settles in spot on the expiration date.
3. The significance of the basis change.
1.Hedging.
For investors who need to avoid ** risk, the change in basis is of great significance to the effect of their hedging strategy. If the basis widens, that is, the spot *** and *** investors can get the opportunity to earn a profit through *** contracts. Conversely, if the basis narrows, i.e., the spot *** and *** investors can get the opportunity to make a profit by selling the ** contract.
2.Speculative trading.
Changes in basis also affect speculators' trading strategies. For example, when the market expects a commodity, speculators can obtain the opportunity to make a profit through spot or contract. However, if the market expects the commodity***, speculators can make a profit by selling the ** contract.
3.Arbitrage trading.
Arbitrage traders focus on changes in the spread between contracts in different markets or with different expiration dates. When there is an anomaly in the spread between the contracts of a commodity in different markets or with different expiration dates, arbitrage traders can obtain the opportunity to make a profit by selling the undervalued contract at the same time.
Fourth, how to deal with basis changes.
1.Keep an eye on the market.
In order to deal with the risk of basis changes, investors need to pay close attention to market dynamics and changes in supply and demand. At the same time, it is necessary to pay attention to the impact of relevant policies and emergencies on the market.
2.Develop a sound investment strategy.
When formulating an investment strategy, investors should choose the appropriate investment varieties and methods according to their own risk tolerance and investment objectives. For hedgers, they should choose the best varieties with high correlation with the spot market for investment; For speculators, they should pay attention to market trends and price differences, and formulate reasonable entry and exit timings and stop-loss and take-profit strategies; For arbitrage traders, they should pay attention to the changes in the spread between different markets or different expiration dates to look for arbitrage opportunities.
3.Establish a risk control mechanism.
In the investment process, it is necessary to establish a risk control mechanism. Investors should set up risk control measures such as stop-loss, take-profit points and maximum loss limits according to their own circumstances to reduce investment risks. At the same time, the portfolio should be regularly evaluated and adjusted to maintain the optimal state of the portfolio.
In summary, it is crucial for investors to understand the basis and the significance of the change. By paying attention to market dynamics, formulating reasonable investment strategies and establishing risk control mechanisms, investors can better cope with the risk of basis changes and maximize investment returns.