What Is the “Basis Risk” Associated with Commodity Futures?

Basis risk is the risk that the price of the futures contract and the price of the underlying physical commodity (the spot price) do not converge at expiration, or that their price relationship changes unexpectedly over time. This is a major concern for hedgers who use futures to lock in a price, as an adverse change in the basis can undermine the effectiveness of their hedge.

Define ‘Basis Risk’ in the Context of Arbitrage Trading
Why Do Traditional Futures Prices Converge with the Spot Price at Expiration?
How Does the Time to Expiration Affect the Magnitude of Basis Risk?
How Does the Price of a Traditional Futures Contract Converge with the Spot Price near Expiration?
What Is “Contango” and “Backwardation”?
What Is the Main Risk That a “Cash and Carry” Arbitrageur Faces?
What Is the Concept of ‘Basis’ in Futures Trading and How Is It Calculated?
What Is the Difference between a Physical Commodity and a Commodity Derivative?