Basis


Basis can be referred to as cost basis or tax basis. Tax basis is used to determine profit or loss on the capital for filing income taxes.


In the case of futures contracts, the basis reflects the relationship between the cash price and futures price Here "cash" refers to the underlying product. The basis is calculated by subtracting the futures price from the cash price. The basis can be negative or positive.

A basis is positive when the cash price is higher than the futures price and is said to be "over”

A basis is negative when the cash price is lower than the futures price and is said to be "under”

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