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Basis Risk Formula

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Basis Risk is the financial risk that traders assume when they hedge a position by holding an opposing position in a derivative, like a futures contract. Check FAQs

BR = FPC - SPHA

BR - Basis Risk?FPC - Future Price of Contract?SPHA - Spot Price of Hedged Asset?

Basis Risk Example

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Here is how the Basis Risk equation looks like with Values.

Here is how the Basis Risk equation looks like with Units.

Here is how the Basis Risk equation looks like.

14755 = 22255 - 7500

14755 = 22255 - 7500

14755 = 22255 - 7500

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Basis Risk Solution

Follow our step by step solution on how to calculate Basis Risk?

FIRST Step Consider the formula

BR = FPC - SPHA

Next Step Substitute values of Variables

∴

BR = 22255 - 7500

Next Step Prepare to Evaluate

∴

BR = 22255 - 7500

LAST Step Evaluate

∴

BR = 14755

Basis Risk Formula Elements

Variables

Basis Risk

Basis Risk is the financial risk that traders assume when they hedge a position by holding an opposing position in a derivative, like a futures contract.

Symbol: BR

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Basis Risk

Future Price of Contract

Future Price of Contract refers to the agreed-upon price at which a specific commodity, financial instrument, etc will be bought or sold on a future date, as specified in a futures contract.

Symbol: FPC

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Future Price of Contract

Spot Price of Hedged Asset

The Spot Price of Hedged Asset refers to the current market price at which the underlying asset can be bought or sold for immediate delivery in the spot market.

Symbol: SPHA

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Spot Price of Hedged Asset

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How to Evaluate Basis Risk?

Basis Risk evaluator uses Basis Risk = Future Price of Contract-Spot Price of Hedged Asset to evaluate the Basis Risk, Basis Risk refers to the risk that arises when there is a mismatch or divergence between the price movements of a hedging instrument (such as a futures contract or derivative) and the underlying asset or liability being hedged. Basis Risk is denoted by BR symbol.

How to evaluate Basis Risk using this online evaluator? To use this online evaluator for Basis Risk, enter Future Price of Contract (FPC) & Spot Price of Hedged Asset (SPHA) and hit the calculate button.

FAQs on Basis Risk

What is the formula to find Basis Risk?

The formula of Basis Risk is expressed as Basis Risk = Future Price of Contract-Spot Price of Hedged Asset. Here is an example- 14755 = 22255-7500.

How to calculate Basis Risk?

With Future Price of Contract (FPC) & Spot Price of Hedged Asset (SPHA) we can find Basis Risk using the formula - Basis Risk = Future Price of Contract-Spot Price of Hedged Asset.

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Basis Risk Formula

Basis Risk Example

Basis Risk Solution

Basis Risk Formula Elements

Other formulas in Risk Management category

How to Evaluate Basis Risk?

FAQs on Basis Risk

Variable Name