Narrow Basis

What does it mean?
A condition found in futures markets in which the spot price of underlying commodities is close to the futures price of the same contract.

In Other Words...
A narrow basis suggests that the market is efficient, as the supply of and demand for the underlying commodity are in equilibrium.

The spot price and futures price should converge at maturity of the futures contract. If they don't, there is an arbitrage opportunity.

Related Links
Market Strength Tutorial - Here you can learn about some of the indicators that traders and brokers use to determine the direction and strength of the market's present trend.

Related Terms
Basis | Commodity | Equilibrium | Forward Rate | Futures Contract | Spot Price | Underlying | Wide Basis

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