What is a Narrow Basis?
How Does a Narrow Basis Work?
For example, let's say the price of a bushel of wheat is $1 right now (this is called the
Accordingly, the prices and the price should be very close to equal at the time of the futures contract's . In other words, one from now, the of one bushel of wheat ought to be darn close to $1.05. If isn't, an arbitrage opportunity exists.
Why Does a Narrow Basis Matter?
In general, the narrower the, the more efficient the for the security or . In turn, the for the security or is relatively and active. In the , a narrow basis also suggests that the expects the supply and demand for the to change very little between now and when the expires.