Theory of normal backwardation

[edlund40]

This video really explains the theory good. However I have a question. Let's assume the commodity is silver. Why the speculator doesn't buy the commodity on the spot price of 10, but instead buys a future for 10.41?

[hartanto68]

i can explain why speculator didnt buy at spot 10. since spot price=cash price. which means speculator would need to take delivery in 2-3 days. since speculator usually doesnt take delivery (assumption).

most speculator are using either forward or futures contract to capture profit ( often position are closed before the delivery date).(storage,insurance,deliv­ery,financing,etc). they would rather use futures/forward since delivery doesnt have to be in 2-3 days depending on the xpiration.

[hartanto68]

most speculator doesnt need the commodity itself since they would have to pay cost of carry if they do

[aduy1109]

Good video, makes the theory easy to understand, simple and easy to follow!

[ashu851]

thanks..clarifies well !

[Castorios]

really interesting, you make it so clear, thanks !