Wide Basis

Wide Basis
A condition found in futures markets in which the spot price of underlying commodities is not close to the futures price of the same contract.

A wide basis suggests that there is an abundant supply of or lack of demand for the underlying deliverable. This is used by investors in futures contracts as a signal to determine what action they should take in the futures market. The spot price and futures price should converge at maturity of the futures contract, otherwise there is an arbitrage opportunity.

Investment dictionary. . 2012.

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