Rollover & basis
What is Basis Risk in futures and how does it describe the pricing differential between cash assets and futures contracts?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Basis risk is the potential mismatch between a futures contract's price and the underlying cash or physical asset's price, which can widen or narrow unexpectedly before convergence.
How it works
Hedgers using futures to offset cash market exposure face residual risk because futures and spot prices are not perfectly correlated until expiration, especially amid supply disruptions.
An example
Cash corn and futures diverge by $0.20/bushel.
Risk & limitations
Basis risk means a hedge is rarely perfectly offsetting.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.