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Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.
Basis point
In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of
yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is
50 basis points greater than an interest rate of 4.5%.
Basis price
Price expressed in terms of yield to maturity or annual rate of return.
Basis risk
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for price
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