Basis Risk

This Issue in United States

Concept of Basis Risk in Futures Trading

In this context of financial law, the following is a definition of Basis Risk: The risk associated with an unexpected widening or narrowing of the basis between the time a hedge position is established and the time that it is lifted.

Basis Risk

Concept of Basis Risk in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): The risk of loss arising from the difference between the economic or legal terms of two derivative (i.e. an instrument that transfers risk from one party to the other) transactions that are intended to hedge each other.

Resources

See Also

• Derivatives Contract