What does Price Basing mean?
Price Basing is a method by which the price of a futures commodity may determine the price of another commodity to be bought by consumers.
It is a method where producers, manufacturers, etc. establish commercial transaction prices based on futures price of a related commodity.
Futures Knowledge Explains Price Basing
The commodities markets involve a lot of very large players that trade in large quantities and can efficiently use the futures markets. Smaller commodities retailers and suppliers can use the information from the futures markets to predict or interpret the direction of prices of their own products.
For example, if the price of crude oil increases, consumers perceive that the price of petrol and gasoline will also increase for retail customers. Or if the price of cotton increases, the prices for garments may also increase subsequently.