Welcome to The Basis, the number that decides whether a hedge actually beats a plain cash position. The basis is the difference between your local cash (spot) price and the futures price, and because it moves on its own, a hedge does not lock in a perfect price. It locks in the futures price plus wherever the basis lands, so getting the basis right is what separates a hedge that helps from one that quietly costs you.
Exam Weight: Part 1 spans ~71% of the exam across Chapters 1-7 combined; the National Futures Association (NFA) does not publish per-unit weights.
Video Resources
What You'll Learn
In this unit, you'll cover:
- How the Basis Is Determined: The cash-minus-futures definition, why the basis can be positive ("over") or negative ("under"), what local forces drive it, and how it converges toward zero as delivery approaches
- Effect of a Change in the Basis: What "strengthening" and "weakening" mean, which move helps the short hedger and which helps the long hedger, and the net-price math that turns a basis change into real dollars per bushel
- Effect on Price of the Commodity Actually Delivered or Purchased: How transportation to the delivery point and the deliverable grade adjust the local price, so the same commodity carries a different basis in different places
- The Basis in Financial Markets: Why the financial-futures basis is a cost-of-carry story (coupon income minus financing cost) rather than storage and freight, and when carry is positive versus negative
Why This Matters
Basis questions are relentlessly direction-sensitive, and the exam knows it. One flipped subtraction, one swapped hedger, or one "strengthening" mislabeled as "positive" and the whole answer inverts. The good news: every conclusion in this unit follows from a single fixed convention (cash minus futures) and a single anchor (the short hedger owns the cash commodity). Nail those two, and the direction of every basis move falls into place.
Let's start with how the basis is determined.