{{tag>forward basis hedge}}

====== Basis Price ======

  * consists out of a premium or discount to the outright price[(:ref:jong-introduction-trade-finance)]
  * determined by various factors like the location and quality of a commodity[(:ref:jong-introduction-trade-finance)]
  * factor quality influences the basis (parties are generally willing to pay more or less depending on the commodity grade)[(:ref:jong-introduction-trade-finance)]
  * <wrap hi>when a futures market is in contango, premiums tend to increase</wrap> (parties start buying physical material to benefit from contango)[(:ref:jong-introduction-trade-finance)]
  * traders prefer to have the materials at locations where it can be delivered to the exchange or in regions where their off-takers are located (demand for material at a specific location can increase leading to a higher basis)[(:ref:jong-introduction-trade-finance)]
  * cannot always be hedged via futures[(:ref:jong-introduction-trade-finance)]
  * backwardations generally lead to weakening premiums, as it is more expensive to hold material[(:ref:jong-introduction-trade-finance)]
  * materials can be sold via forward sales contract that includes a fixed basis price (basis not exposed to price fluctuations)[(:ref:jong-introduction-trade-finance)]