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The opposite market condition to contango is known as backwardation. "A market is 'in backwardation' when the futures price is below the expected spot price for a particular commodity. This is favorable for investors who have long positions since they want the futures price to rise to the level of the current spot price".
In practice, the expected future spot price is unknown, and the term "backwardation" may refer to "positive basis", which occurs when the current spot price exceeds the price of the future. [3]: 22 The opposite market condition to normal backwardation is known as contango. Contango refers to "negative basis" where the future price is trading ...
Futures prices tend to be in contango; The volatility of spot and futures prices tend to be low, and futures premiums rise to the full cost of storage; When supplies are tight, and purchasing managers build production inventory levels to ensure availability, Futures prices tend toward backwardation
Markets are said to be normal when futures prices are above the current spot price and far-dated futures are priced above near-dated futures. The reverse, where the price of a commodity for future delivery is lower than the expected spot price is known as backwardation. Similarly, markets are said to be inverted when futures prices are below ...
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They are never contango or normal backwardation themselves. Contango/Normal backwardation is what happens to those curves in relation to the expected spot price as time goes by. While it is often true that a certain type of futures curve results in a contango, they are not the same (cf. a beginning state vs the resulting process).
A convenience yield is an implied return on holding inventories. [1] [2] It is an adjustment to the cost of carry in the non-arbitrage pricing formula for forward prices in markets with trading constraints.
Exchange-traded funds are some of the most useful investments ever created. But they can also be more complicated than you realize, and if you don't understand all the intricacies involved in a ...