Basis

Basis describes the gap between the current price (or spot price) of an asset and the price of a contract to deliver it in the future (a futures contract). The future price is often higher than the spot price because the seller adds the cost of holding the asset until delivery to the current price.

For example, if Gold is trading at $1500 per ounce, a contract to deliver gold in three months time will be a higher price, because the seller of the futures contract bears all the 'cost of carry'. The carry cost would include things like storage and insurance costs up to the point of delivery. If the buyer of the futures contract decides to roll the contract over for a further three months, the basis will increase, with the new futures contract price being even higher, leading to a situation known as 'contango', as the future delivery is pushed further and further out.

What to do if you need more help

If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.

We hope you found this information useful.

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