Taking opposite positions in the cash and futures market to profit from favorable movements in the basis.
An arbitrage position typically comprising a long cash position together with a short position in its respective futures contract, whereby the cash price plus the cost of carry of the underlying position is lower than the futures price. Arbitrageurs will therefore buy cash and 'carry' to the futures date for delivery into the futures contract. It is assumed that the cash position is financed in the overnight repo market. By convention, buying the basis is to buy cash bonds and sell futures, and selling the basis is to sell cash bonds and buy futures.
Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.
to basis trade is to deal simultaneously in a derivative contract, normally a future, and the underlying asset. The purpose is either to cover derivatives sold, or to attempt an arbitrage strategy. This arbitrage can either take advantage of an existing mispricing (in cash-and-carry arbitrage) or be based on speculation that the basis risk will change.
Basis trading is the simultaneous entry into both a cash position for a particular product and an equal and opposite futures position on the same underlying. A basis trader looks to profit from a change in the relationship between the cash price and the future, i.e. from a change in the basis.
Basis trading is an arbitrage strategy usually consisting of the purchase of a particular security and the sale of a similar security (often the purchase of a security and the sale of a corresponding futures contract).