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How Does the Concept of “Basis Risk” Relate to Derivative Hedging?

The risk that the derivative's price movement does not perfectly match the underlying asset's price, leading to an imperfect hedge.
Greeks.Live13.11.25

How Does the Concept of “Basis Risk” Relate to Derivative Hedging?

Basis risk is the risk that the price of the derivative used for hedging (e.g. a futures contract) does not perfectly correlate with the price of the underlying asset being hedged (e.g. the spot token). This imperfect correlation means the hedge will not be 100% effective, leaving the DAO with some residual price exposure.

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