Define the Term 'Basis' in Futures Trading ⎊ Path

Define the Term ‘Basis’ in Futures Trading.

Basis is the difference between the current spot price of the underlying asset and the price of its corresponding futures contract. It is calculated as: Basis = Spot Price – Futures Price.

The basis can be positive (contango) or negative (backwardation). As the futures contract approaches expiration, the basis tends to narrow and eventually converge to zero.

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