basis

Basis

1. A term used to describe the variation between the spot price of a deliverable commodity and the relative price of the futures contract for the same actual that has the shortest duration until maturity.

2. A security's basis is the purchase price after commissions or other expenses. Also known as cost basis or tax basis.

Notes:

1. As there are gaps between spot and relative price until expiry of the nearest contract, the basis is not necessarily accurate. In addition to the deviations created because of the time gap between expiry of the futures contract and the spot commodity, product quality, location of delivery, and the actuals may also vary. In general, the basis is used by investors to gauge the profitability of delivery of cash or the actual, and they also use it to search for arbitrage opportunities.

2. This figure is used to calculate capital gains or losses when a security is eventually sold.

See also: Actual, Arbitrage, Basis Grade, Basis Risk, Cash Settlement, Cost Basis, Delivery Month, Narrow Basis, Tax Basis, Wide Basis

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Basis

The price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold. Also, for a futures contract, the difference between the cash price and the futures price observed in the market.

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basis

1. In futures trading, the difference between the futures price and the spot price. The basis will narrow as a contract moves closer to settlement.

2. In taxation, the acquisition cost of an asset adjusted for capital distributions (that is, stock dividends). A security's basis is used in calculating gains and losses for tax purposes. Also called cost basis, tax basis. See also adjusted basis.