A form of arbitrage in which one buys an investment vehicle while selling or selling short a similar investment vehicle. For example, one may buy a stock while selling a futures contract on the same stock. Alternatively, one may buy a put while selling a put on the same underlying asset for a different strike price. Basis trading is advantageous when the trader believes there is price inefficiency between the two investment vehicles such that the gain on one will offset the loss on the other. For instance, in the futures contract example, basis trading can be advantageous if the price of the stock plus the cost of carry is less than the price of the futures contract that the investor sells. It is also called relationship trading.
"The Brexit process continues to be quite uncertain in the nature of its final outcome and the future trading relationship trading relationship between the UK and remaining EU states," said Chris Jones, the IUA's director of market and legal services.
Before entering into an SBT relationship trading partners must agree to full cooperation and adoption of mutually consistent and defined objectives (such as reductions in out-of-stocks, time saving during check-in, more accurate invoices).
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