NexusFi: Find Your Edge


Home Menu

 





Basis Risk for a hedger


Discussion in Traders Hideout

Updated
    1. trending_up 1,092 views
    2. thumb_up 0 thanks given
    3. group 1 followers
    1. forum 2 posts
    2. attach_file 0 attachments




 
Search this Thread

Basis Risk for a hedger

  #1 (permalink)
lawton
orlando FL/USA
 
Posts: 2 since Dec 2015
Thanks Given: 0
Thanks Received: 0

Hello Everyone

If I enter in a cash settled futures contract expiring 4 months from today and wait until expiration, does all the marked to market daily adjustments will be closed to zero? In other words, there will be no basis risk at expiry date? Keep in mind I'm looking from a point of view of a hedger not a trader. I'm guessing there are differences in the approach.

Thank you for your responses. I'm a new to futures and trying to understand this basis risk deal.

Lawton

Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Deepmoney LLM
Elite Quantitative GenAI/LLM
The space time continuum and the dynamics of a financial …
Emini and Emicro Index
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
61 thanks
Funded Trader platforms
39 thanks
NexusFi site changelog and issues/problem reporting
26 thanks
Battlestations: Show us your trading desks!
26 thanks
The Program
18 thanks
  #3 (permalink)
lawton
orlando FL/USA
 
Posts: 2 since Dec 2015
Thanks Given: 0
Thanks Received: 0


Hello Everyone

Since nobody responded to the first post, I'm rephrasing it.

I'm trying to understand from a hedger perspective and migrating from FOREX so bear with me.
Assume a cash settled instrument for a FX futures contract on currency pair AAA/BBB, and no margin calls during the 4 months of the contract.
enter in a long position today (Date d1) to deliver in 4 months from today (Date d2)
future contract on d1 for a delivery on d2 is 1.5AAA=1 BBB
Spot on d1 is 1.45AAA=1BBB
every day the contract goes under marked to market adjustment and there will be losses and gains during the 4 month until expiry date d2.

On d2 the future for AAA/BBB is settled at 1.47AAA=1BBB. The spot on d2 is 1.43AAA=1BBB
Is the profit/loss at d2 on the future contract closed to 1.5-1.47=0.03 loss?
If so, what happens with the daily settlements? Do they net to zero?
Is that 0.03 loss the basis risk? or the basis risk is the difference between spot and futures at date d2 1.47-1.43 = 0.04?

thank you,

Lawton

Reply With Quote




Last Updated on December 5, 2015


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts