Commodity Blog

Posts Tagged ‘contango’

This short trading video explains the concepts of contango, backwardation and roll yield and how they are used in futures trading. I strongly recommend watching this video if you lack the understanding of these basic concepts.

This video explains the basics of the two important concepts in commodity trading — futures contango and futures backwardation. The good part about the video is that it starts off with explaining the really basic terms and then it heads into describing the possible usage of the knowledge. The concepts of normal contango and normal backwardation are also presented. Contango is a state of the commodity market when the futures price is higher for the futures with a more distant date of expiration. Backwardation is a state of the commodity market when the futures price is lower for the futures with a more distant date of expiration.

In this video, Jeffrey Kramer, explains the relation between the different types futures curves (normal and inverse) and the handling of the rolling commodity futures contract that are managed by the index funds. The contango and backwardation processes are detailedly described here. It’s not difficult to understand and will help greatly in commodity trading if you plan to buy or sell futures near their maturity date.