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Backwardation

When the Spot Price for a Futures Contract is trading higher than the Futures Price, this is known as Backwardation.

In the Futures Market, Backwardation refers to a pricing event of any commodity traded in the Futures Markets when the Spot Price is higher than the Futures Price. Backwardation is an unusual occurrence because there is the cost of carrying the commodity. Backwardation can occur due to higher demand for a commodity, compared to contracts which are maturing. To profit from this, futures traders will sell short the commodity at Spot and buy the Futures Contracts at the lower price.

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Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

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