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Contango trading strategies

contango trading strategies

spot price for a particular commodity. The price"d for a commodity is often the cash or spot price, but even more often it's the price of easy to start work from home jobs the active month futures contract traded on a futures exchangeand those prices tell only a part of the story when it comes to the. Contango means that the spot price of oil is lower than future contracts for oil. Contango and backwardation are frequently seen in commodity markets where certain factors prompt the price discrepancy between expected future spot prices and the price of futures contracts. When they drop, people tend to drive more and this naturally decreases the swelled supplies. Therefore, investors who wish to stay long in these commodities would have to buy contracts at higher prices, which would cause a negative roll yield. Futures contracts for oil are settled by physical delivery of the oil. Going back to the example, the trader will sell a futures contract for delivery two months out. A futures contract is a legal agreement to buy or sell a physical commodity at some point in the future.

How to leverage market contango and backwardation Futures How can traders use contango to take advantage of the storage Backwardation and Contango in Commodity Trading - The Balance

contango trading strategies

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In commodities, contango markets also exist because financing, storage, and forex sunday bar insurance of abundant supplies cause those progressively higher futures prices by virtue of the need to carry surplus inventories. The opposite of contango is known as normal backwardation. Page 1 of 5 next. Concurrently, there was an economic slowdown in China. Contango Is Not a New Dance. Back to basics, a brief review of exactly what a futures contract is can be helpful when trying to understand contango and backwardation. They often offer an analyst some of the best information as to the current state of supply and demand in a particular raw material.

Why Does Backwardation Matter? For example, assume an investor is long one futures contract, which expires in six months, on a commodity experiencing contango at a price of 19, when the commodity is currently trading. Backwardation is often considered as the normal state of the commodities market.