Research On Risk Management Of Basis Trading Model Of X Company

X Company belongs to the Soybean Crushing industry.During recent years,the basis pricing sales model becomes more and more important for X Company's daily sales.The basis pricing sales is a kind of sales model which uses future market to price the cash sales,and it is highly associated with future contracts and hedging business.However,X Company doesn,t have deeply understanding of the risk embedded in basis trading,and the development of risk management for basis sales does not match the progress of the business growing.This article tries to use the theory of futures trading,hedging,risk management and Derivatives Internal Control to study and analyze the risk management of X Company 's basis trading.It studied the general features of basis trading and its risk,and then applied the general conclusion into X Company's business through the analyzing of X Company's industry,its basis trading data,and its basis trading processes.It was found that the risk of basis trading has different patterns among different phases of the transaction.During the hedging phase,the main risk is the market risk of price and basis moving,also the operating risk of futures trading.During the basis contract signing process,the main risk includes the wrong basis offering,the credit risk of cistomer,the legal risk of contract terms.After signing the contract and before the pricing of the contract,the main risk is the customer default risk,and the legal risk related with pricing process.After the pricing of the contract,the risk changes to the execution of long term contacts and the operating risk related with high price contracts' lower execution rate.The current risk management of basis trading in X Company still has a lot of defects,especially is the ignorance of the risk of un-priced basis contracts.There are a lot of improvements which could be made from the points of governance,recognition and measurement,report and monitoring,management and intermal organization.At the last part of this article,several advices have been given from the aspects of objective setting,internal environment,risk identification,risk assessment,risk response,control activities,information and communication,monitoring and learning,in the sight of Enterprise Risk Management theory.Hopefully,it could lbe helpful to support the X Company's risk management of basis trading.