Spot-Futures Basis
The difference between the spot price and a futures price for the same commodity — the numerical expression of carry, storage, and convenience yield.
Basis = Spot Price − Futures Price
The spot-futures basis is the arithmetic difference between the cash (spot) price and the futures price: Basis = Spot − Futures. In a normal contango market, the basis is negative (spot is lower than futures). In backwardation, the basis is positive.
The basis narrows (converges to zero) as the futures contract approaches delivery — a process called basis convergence. Traders who hold physical commodity and hedge with futures lock in a profit equal to the basis at hedge initiation, assuming convergence occurs as expected.
Unexpected basis moves (basis risk) are the primary residual risk for hedgers in commodity markets. A producer who sold futures to hedge may find that their local cash price diverges from the futures benchmark at delivery, creating profit or loss beyond the hedge.