The futures broker is licensed to allow individuals to establish a trading account and use the futures markets. When futures are traded, a portion of the fund is placed on reserve in a margin account. Then, depending on which way price moves, gains or losses in the futures market are added to or taken away from the margin account. A small commission is charge by the broker for each futures transaction. However, most futures contracts are not actually delivered in this way.
Basis is equal to the cash minus the futures price.
Basis is fairly predictable but is different around the state. In general, basis is higher closer to rivers, processors or other high demand locations. The following table illustrates the result of using the futures market to sell stored production in December for delivery in February. The 5,000 bushels of soybeans in storage are sold using the March futures market in December, 1997. This establishes a hedge for the farm producer.