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FINANCIAL MARKET COURSES

Basis Trading

Basis is the term given to the difference between the cash bond price and the price of the nearby futures contract. In this course, we examine what this actually means, and the reasons for such a differential. The factors causing this differential do not stay constant over time, so we investigate how time affects these factors. Finally, we explain why in most cases only one bond from the many deliverable bonds into a bond futures contract is ever chosen to be delivered.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify basis trading strategies for portfolio managers

    Execute basis trades

  • COURSE OUTLINE

    Topic 1: Strategies for Portfolio Managers

    Buying the Basis

    Payoff to a Long Basis Trader

    Buying the Basis: Cheapest to Deliver Bond

    Buying the Basis: Non-cheapest to Deliver Bond

    Selling the Basis

    Risks in Short Basis Trade

    Trading the Implied Repo Rate

    Topic 2: Executing the Trade

    ‘Legging’ into Trades

    Importance of Execution

    Basis Trades and Futures Expiry

    Roll into the next Futures Contract

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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