What is the relationship between basis and hedging, and between basis and buying and selling hedging

Hello, theoretically, **** is the market's estimate of the future spot market, and there is a close connection between the two. Due to the similarity of influencing factors, **** and spot ** often show a relationship between the same rise and fall; However, the influencing factors are not exactly the same, so the change range of the two is not completely consistent, and the relationship between spot ** and **** can be described by basis. The basis is the difference between the spot ** of a commodity at a specific location and a specific **contract** of the same commodity, that is, basis = spot **-****.

The basis is sometimes positive (called the reverse market at this time) and sometimes negative (called the positive market at this time), so the basis is a dynamic indicator of the actual operational change between the **** and the spot.

Changes in basis have a direct impact on the effectiveness of hedging. It is not difficult to see from the principle of hedging that hedging is actually replacing the volatility risk of the spot market with basis risk, so theoretically speaking, if the basis does not change at the beginning of hedging and the end of hedging, it is possible to achieve complete hedging. Therefore, hedgers should pay close attention to changes in basis during the trading process and choose a favorable time to complete the transaction.

At the same time, because the change of basis is relatively stable than the fluctuation of **** and spot, this provides favorable conditions for hedging transactions; Moreover, the change in basis is mainly subject to the holding cost, which is also much more convenient than directly observing the change in **** or spot**.

Because when the basis becomes smaller, the overall cost will go down, so it will be easier to buy the hedger, because the cost is lower, so people will compete for this period to buy, and then to liquidate.

When the increase in the spot market is less than the increase in the market, the absolute value of the basis becomes larger, the hedging profit is greater than the loss in the positive market, and the hedger can be fully protected.

Because there is a layer of profit comparison in between, when estimating these gaps, you can earn relevant profits.

BasisBecoming smaller is conducive to buying hedgers, and the basis is larger and is conducive to selling hedgers, because of the positive market, spot **-****Absolute, the distance from the zero value becomes closer and closer; In the reverse market, the absolute value of the spot **-**** is getting farther and farther away from the zero value; Or change from a forward market to a reverse market.

If you buy the spot, although the physical transaction suffers a loss, the hedging can be profitable; If you buy the spot, although the hedging is a loss, the spot transaction can be profitable, and the loss can be offset.

This practice of selling hedging can diversify risks and protect the interests of actual users. Sell hedging is often used by processing enterprises, manufacturing companies and merchants, which can reduce the risk of fluctuations and help stabilize production costs.

and guaranteed earnings.

For example, I want to sign a contract with you to sell a water bottle to you after 3 months, in order to fear that the decline of the water bottle will bring me losses, so I will sell a ** to hedge the risk, but ** also has a term. The difference between these two maturities is the basis risk, figuratively speaking, the risk that occurs after the insurance period of the asset is not protected. I don't know if you understand, hehe.

The weakening of the basis weakens the role of short hedging, and the strengthening strengthens this effect.

A stronger basis weakens the role of long hedging, and a weaker weakens this effect.

Damn, take the ** analysis question to baidu, I really convince you. I remember that when I used to watch **, I summarized some rules, but now I have forgotten it. I can't remember what factors are there from the change of basis and the direction of the position, but the basis looks at the y-axis, which is negative downward and positive upward; The bulls are positive, the bears are negative; There is also a factor that can be set to positive and negative, the three factors together with the law of positive and negative remains, the result is negative means that the effect of hedging is negative, and the result is positive indicates that the effect of hedging is positive.

South-Central University for Nationalities "**Investment" Elective Course Final Exam 2 Short Answer Questions 2 Briefly describe how the change in basis affects the effect of ** hedging o( o haha

The basis is the difference between the spot and the future, that is: basis = spot**-****.

The basis can be positive or negative, depending on whether the spot is higher or lower. If the spot ** is higher than the ****, the basis is positive, also known as the forward discount or spot premium; If the spot ** is lower than the ****, the basis is negative, also known as the forward premium or spot discount.

The basis contains two components, that is, the "time" and "short" factors that separate the spot and the ** market. As a result, the basis encompasses the cost of transportation and the cost of carrying between the two markets. The former reflects the spatial factors between the current prudent vertical goods and the ** market, which is also the basic reason why the basis of two different locations is different at the same time; The latter reflects the time factor between the two markets, that is, the holding cost of two different delivery months, and it also includes storage fees, interest rates, insurance premiums and wear and tear fees, among which interest rate changes have a great impact on holding costs.

In the first paragraph of Article 3 of the ** and Derivatives Law of the People's Republic of China, the term "** transaction" in this law refers to the trading activities with ** contract or standardized option contract as the subject of the transaction.

Answer]: B basis trading is different from the general hedging operation in that because it is a combination of point price trading and hedging operation, when the hedging position is closed, the corresponding basis basis is fixed to pay the premium established at the point price transaction. This ensures that the basis at the time of closing the position is already known when the hedging is opened, thereby reducing the uncertainty of the basis change and reducing the risk of the previous difference of the mega base.