narrow basis

Narrow Basis

A condition found in futures markets in which the spot price of underlying commodities is close to the futures price of the same contract.

Notes:

A narrow basis suggests that the market is efficient, as the supply of and demand for the underlying commodity are in equilibrium.

The spot price and futures price should converge at maturity of the futures contract. If they don't, there is an arbitrage opportunity.

See also: Basis, Commodity, Equilibrium, Forward Rate, Futures Contract, Spot Price, Underlying, Wide Basis

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narrow basis

A market condition in which only a small difference exists between a spot price and futures prices for the same type of contract. Compare wide basis.