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Booking the Basis


What does Booking the Basis mean?

A futures contract without fixing the commodity price at the time of entering contract. It is an arrangement whereby the seller and buyer agree to sell and buy a commodity futures and also agree to decide the price at a later date.  The price in such a transaction is linked with some index or say weekly or monthly average price prevailing at the time of delivery.

Futures Knowledge Explains Booking the Basis

It is a method of pricing used in some futures contracts. This is suitable for long duration arrangement between buyer and seller or when the market is volatile. Both parties agreeupon a basis or formula of pricing which contains variables whose may change with time. For example, a refined petroleum product futures contracts may link its price with the crude oil price (raw oil). You need not have to fix price at the time of entering into the agreement. You indicate only the basis for arriving at the price.



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