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Basis trading is a financial trading strategy which consists of the purchase of a particular financial instrument or commodity and the sale of its related derivative for example the purchase of a particular bond and the sale of a related futures contract.
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Basis trading is a financial trading strategy which consists of the purchase of a particular financial instrument or commodity and the sale of its related derivative for example the purchase of a particular bond and the sale of a related futures contract. Basis trading is done when the investor feels that the two instruments are mispriced relative to one other and that the mispricing will correct itself so that the gain on one side of the trade will more than cancel out the loss on the other side of the trade.
In the case of such a trade taking place on a security and its related futures contract, the trade will be profitable if the purchase price plus the net cost of carry is less than the futures price. Basis can be defined as the difference between the spot price of a given cash market asset and the price of its related futures contract.
Usually, basis is defined as cash price minus futures price, however, the alternative definition, future price minus cash, is also used.
A basis trade profits from the closing of an unwarranted gap between the futures contract and the associated cash market instrument. From Wikipedia, the free encyclopedia.
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Derivative Market – Meaning, Types, Participants, Differences
Futures and options are tools used by investors when trading in the stock market. As financial contracts between the buyer and the seller of an asset, they offer the potential to earn huge profits. However, there are some key differences between futures and options. Click here if you want to know how to buy and sell Futures Contracts. Understanding what are futures and options, particularly the points of difference between the two, will help you to use these trading tools in the best possible way. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Here, the buyer is obliged to buy the asset on the specified future date.
Companies are increasingly paying for acquisitions with stock rather than cash. But both they and the companies they acquire need to understand just how big a difference that decision can make to the value shareholders will get from a deal. In alone, 12, deals involving U. But the numbers should be no surprise. After all, acquisitions remain the quickest route companies have to new markets and to new capabilities. As markets globalize, and the pace at which technologies change continues to accelerate, more and more companies are finding mergers and acquisitions to be a compelling strategy for growth.
The popularity of derivative can easily be understood by daily turnover in the derivative segment on the exchange, which is much higher than turnover in the cash segment on the same exchange. From the below graph we can see how the Derivatives market showed continuous growth in the past years:. Exchange refers to the formally established stock exchange wherein securities are traded and they have a defined set of rules for the participants. Whereas OTC is a dealer oriented market of securities, which is an unorganized market where trading happens by way of phone, emails, etc. On the other hand, OTC derivative constitutes a greater proportion of derivatives contracts, but it carries higher counterpart risk and is unregulated.
The narrowing of the price difference between the physical cash market and spot futures contract during the delivery period. Page 7. Convergence occurs via.
Corn producers will want to compare hedging in the futures market with forward contracting in the cash market. Forward cash contracting involves a commitment to deliver corn to a grain buyer at some future time. Both alternatives can be used to: price before or after harvest; establish a return for storage; and reduce price risk. Thus, deciding which alternative to use depends upon weighing hedging advantages and disadvantages in relation to forward cash contracting.
Futures and forwards are financial contracts which are very similar in nature but there exist a few important differences:. In any agreement between two parties, there is always a risk that one side will renege on the terms of the agreement. Participants may be unwilling or unable to follow through the transaction at the time of settlement. This risk is known as counterparty risk. In a futures contract, the exchange clearing house itself acts as the counterparty to both parties in the contract.
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Она выглядела как первокурсница, попавшая под дождь, а он был похож на студента последнего курса, одолжившего ей свою куртку. Впервые за многие годы коммандер почувствовал себя молодым. Его мечта была близка к осуществлению. Однако, сделав еще несколько шагов, Стратмор почувствовалчто смотрит в глаза совершенно незнакомой ему женщины. Ее глаза были холодны как лед, а ее обычная мягкость исчезла без следа. Сьюзан стояла прямо и неподвижно, как статуя. Глаза ее были полны слез.
Нахмурившись, Беккер набрал второй номер. И на другом конце сразу же сняли трубку. - Buenas noches, Mujeres Espana. Чем могу служить. Беккер держался той же версии: он - немецкий турист, готовый заплатить хорошие деньги за рыжеволосую, которую сегодня нанял его брат.
Никакой пули. Беккер снисходительно покачал головой: - Иногда все выглядит не так, как есть на самом деле. Лицо немца стало белым как полотно.