Long The Basis

An individual or company that owns or has purchased a commodity such as oil, gold or lumber and then hedges its position by selling futures contracts on the commodity owned. This gives commodity holders a guaranteed price that they can sell their commodities at if the market price moves against their underlying position.

By definition, a gold-mining company maintains a significant position in the precious metal. However, because the price of gold is susceptible to market pressures and may fluctuate wildly at times, the company may choose to hedge its position (through the sale of futures contracts) and thus lock in a guaranteed range of value. An individual or company that does this (owns the physical commodity and hedges their position) is said to be "long the basis".


Investment dictionary. . 2012.

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