Price Basing
A method of pricing commercial commodity transactions that bases these prices on related futures contract prices. This method is used by commodity producers, processors, merchants and consumers.
Investopedia Commentary
Using futures contracts with similar underlying commodities as a pricing benchmark for commercial commodity transactions allows smaller participants in the commercial market for commodities to factor-in different variables. Price basing permits these individuals and companies to reach a more informed price without the related cost of research.
Related Links
Futures Fundamentals
Corporate Use of Derivatives for Hedging
See also: Cash Commodity, Cash Price, Commodity, Futures Contract, Futures Market, Price Discovery, Spot Commodity, Spot Price, Underlying