What is Basis Trading?
Basis trading is all about playing the extremes of the cash and futures market. As an arbitrage strategy that demands the implementation of a long cash position that is coupled with a short position in the futures contract, the point of basis trading is to maximize generated revenue from the venture while keeping expenses at a minimum. Sometimes referred to as a cash and carry trade, this type of arbitrage position has a lot of potential to reap big rewards, if the timing is right. The process of basis trading is all about getting the right mix between the futures contract and the cash movement that is associated with the contract. This mean looking very closely at the activity level of securities that may be a good fit for the strategy. Once a security has been identified as being a good candidate, the purchase begins. As part of the approach the deal is put together with a long cash position that is matched with a short position on the futures. In a sense, what is happening is that t
