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What is basis and how it plays the relationship between future price and cash price?

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Question added by SHAIKH MOHAMMED BASHEER AHMED SHAIKH , Account Manager , Tarik Al Zahid Holding Company
Date Posted: 2014/03/30
Abdul Samad Nadeem Malik
by Abdul Samad Nadeem Malik , Business Support Officer , Thimar Al Jazirah - 3M ESPE

The basis reflects the relationship between cash price and futures price. (In futures trading, the term "cash" refers to the underlying product). The basis is obtained by subtracting the futures price from the cash price.

Deleted user
by Deleted user

There are only two scenarios in this case the Future price can trade at Premium or at Discount however the future price will converge to Spot at Expiry this is the fate of Futures. Usually the premium or Discount will be high at month begining as the time pass by the premium or Discount will reduce gradually and converge to SPOT

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