Contango & backwardation in commodity forward markets

Contango and backwardation are about the relationship between the spot and forward price. If Forward is greater than Spot, it's contango (upward sloping forward curve). If Forward is less than Spot, it's backwardation (inverted forward curve). The "normal" prefix refers to relationship to expected future spot price and is harder to figure.

Category:

Education

Tags:

• Finance
• Derivatives
• Commodities

[britoca]

"backwardation"

there has to be a better name

[bionicturtledotcom]

@britoca totally agree. We should just use "inverted" for backwardation (with less chance to be confused with "normal backwardation")

[acidentallycool]

Thank you i got it finally!

[bionicturtledotcom]

@acidentallycool Awesome, thanks!

[admetric]

Thank you David. I was having a discussion concerning Contango vs. backwardation with a co-worker and your video resolved all problems. Very clear explaination.

[bionicturtledotcom]

@admetric nice to hear, glad i could help!

[bionicturtledotcom]

the point? learning. In some subjects, people like to learn stuff, to, you know improve themselves. For example, you can even learn how to type these days :)

[SCOPELABS]

@britoca how about "ass-backwardation" lol THINK about volatility Futures !!! we have a flash crash and the back months get backwards i.e. like options in futures trading at discount IF that makes sense -G

[kristonren]

@kristonren with exception to the alternating cycles

[kristonren]

so, Normal curve = contango.... Inverted curve = backwardation.

:) Im glad I watched this link, made it easier to understand

[KeyboardPacifist]

@bionicturtledotcom thanks david. I work as a physical therapist & hear my patients yap a lot about speculation. I only have an outdated notion of how world events and competiting markets affect the price of barrels. This stuff is pretty far out of my realm - but I love when a bridge of knowledge is extended ... Now I've got another tool to view what is going on around here. I pay the highest cost at the pump (Bay Area, CA) - I'd like to know if contango adds momentum to the E(S)t

[04473272]

I love you David

[ngopalakrishna]

How I wish I had a prof like you David.. Thank you!