Basis Trading

See basis point.

A trader will use this strategy to generate profit off small fluctuations in the basis point value of two different assets.

For example, a basis trader may perceive two similar securities as being incorrectly priced, and purchase the overpriced security with the expectation of it depreciating (short position), and purchase the underpriced security with the expectation that it will appreciate (long position). As their respective values converge, the basis trader makes their moolah.