Contango vs Backwardation

Contango vs Backwardation

Contango is when the futures price is above the expected future spot price. A contango market is often confused with a normal futures curve. Normal backwardation is when the futures price is below the expected future spot price. A normal backwardation market is often confused with an inverted futures curve.

Is oil usually in contango or backwardation?

It remains in contango, with the spread at minus $9 a tonne. Despite the current weakness, the spread is still far above the level of minus $92 a tonne in April 2020, when many countries entered a first round of lockdowns, and oil sellers struggled to find buyers with storage tanks brimming full.

What is backwardation and contango?

Contango and backwardation are terms used to define the structure of the forward curve. When a market is in contango, the forward price of a futures contract is higher than the spot price. Conversely, when a market is in backwardation, the forward price of the futures contract is lower than the spot price.

Is contango bullish?

Contango refers to a situation where the futures price of an underlying commodity is higher than its current spot price. Contango is considered a bullish sign because the market expects that the price of the underlying commodity will rise in the future and as such, participants are willing to pay a premium for it now.

Is backwardation bullish or bearish?

Backwardation is theoretically a bullish sign for oil, because it means traders no longer have an incentive to store oil and sell it at a later date. Instead, it’s best for them to sell oil now because prices could be lower in the future.

How do you profit from contango?

Traders with access to both physical oil and storage can make substantial profits in a contango market. A contango is a situation where the futures price of a commodity is higher than the spot price. Another way for traders to profit off a contango market is to place a spread trade.

Is there currently oil in contango?

Yet, the oil futures curve is currently in “backwardation” which describes the situation when spot prices and the front month futures price (CL1:COM) exceed the futures prices for delivery in months that are further out.

Futures contract Price, $/bbl
January 81.60
February 80.09
March 78.72

2 more rows

Nov 4, 2021

Why is there contango in Bitcoin futures?

Futures in contango indicates that the supply of Bitcoin is plentiful because there is no cap on futures open interest, says Steve Sosnick, chief strategist at Interactive Brokers.

Is crude in contango?

Contango is normal for a non-perishable commodity, like crude oil and products, which have a cost of carry. Such costs include storage fees and interest forgone on money that is tied up in inventory.

Is oil a backwardation?

The phenomenon of backwardation illustrates one of the reasons why oil is in short supply right now. ELISSA NADWORNY, HOST: There are a lot of factors behind high oil prices right now – soaring demand for energy, natural gas shortages, the threat of conflict between Russia and Ukraine.

What causes contango and backwardation?

The opposite of backwardation is contango, where the futures contract price is higher than the expected price at some future expiration. Backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the future through the futures market.

How much is a Bitcoin futures contract?

The price of a single bitcoin, when the futures contract was purchased, is $5,000 each, meaning the total price for both futures contracts is $50,000. The margin requirements for bitcoin futures trading at CME is 50%, meaning that the investor has to deposit $25,000 as margin.

Why does contango have low spot prices?

Contango can be caused by several factors, including inflation expectations, expected future supply disruptions, and the carrying costs of the commodity in question. Some investors will seek to profit from contango by exploiting arbitrage opportunities between the futures and spot prices.

What is contango in ETF?

Contango translates into roll costs to an investor (or an ETF) having to move from one contract to the next. The opposite of contango is backwardation, when the expiring futures contract is trading at a premium to the next contract.

Is natural gas in contango?

Both the HO and Nat Gas contracts move into contango and backwardation on a seasonal basis. Both commodities are over produced during the summer season while demand outstrips demand during the winter heating season.

How do you benefit from backwardation?

In order to profit from backwardation, traders would need to buy a futures contract on gold that trades below the expected spot price and make a profit as the futures price converges with the spot price over time.

What do you do in backwardation?

To identify futures going through backwardation, look at the spread between near-month contracts and contracts that are further out. If a futures contract trades below the spot price, it will increase because the price must eventually converge with the spot price upon contract expiration.

What commodities are in backwardation?

But urgent demand has flipped about half of major commodity markets tracked by the Bloomberg Commodity Index including oil, natural gas, copper, soybeans into backwardation.

When basis is positive it is known as contango?

Contango is when the futures price is above the expected future spot price. 3? Because the futures price must converge on the expected future spot price, contango implies futures prices are falling over time as new information brings them into line with the expected future spot price.

What is a contango bleed?

Contango bleed is a term for the costs that futures ETFs must take on to renew, or roll, their futures contracts. If the price of the futures contracts is higher than the expiring contract, the ETFs lose a bit of money each instance, and this adds up over time.

What is super contango?

Super contango occurs when the spot price for a commodity trades substantially below the futures price. Super contango usually occurs when storage space becomes scarce due to excess supplymeaning that the cost of carry (the cost of storing a physical commodity) increases.

Why is Brent in backwardation?

Why does backwardation happen? Backwardation can happen when the current demand for oil is higher than the future contracts. One of the reasons for the high current demand is a shortage of oil in the spot markets.

Why is oil curve in backwardation?

A backwardated market structure means the current value is higher than it will be in later months and encourages traders to release oil from storage and sell it promptly.

What do you mean by spot price?

The spot price is the current price in the marketplace at which a given assetsuch as a security, commodity, or currencycan be bought or sold for immediate delivery.

What will bitcoin be worth in 2030?

What Will Bitcoin Be Worth in 2030? Experts predict that Bitcoin’s price can reach up to $1,000,000 in 2030 if trends continue as they are.

What is contango bitcoin?

2/ Contango is how you describe a market where the futures price is higher than the spot price. For instance, right now, the front month bitcoin futures contract – which expires on October 29 at 11am ET – is trading for $61,900. But the spot price of BTC is only $61,743.

Is bitcoin a contango or backwardation?

Bitcoin futures are traded in contango most of the time. In a contango scenario, the futures contracts prices will fall to the expected spot price when the contract is nearing the expiry date.

How do you use contango?

One way to trade contango is to go short or sell at spot price and then go long or buy a further out contract. This can lock in a higher sell price and a lower buy price.

Is VIX a contango?

Leveraged ETFs on the VIX, crude oil, gold and even the S&P 500 all fall under contango pricing. However, certain instruments like VIX products and leveraged ETFs state the objective is to mirror the one-day performance of the underlying index or commodity.

Why do futures trade at a premium?

Typically, futures always quote at a premium to spot, to reflect the cost of carrying forward the position.

What does VIX backwardation mean?

Backwardation is less frequent than contango in VIX futures, but not uncommon. It typically occurs when the spot VIX index spikes and the market expects volatility to decrease again in the future.

What is silver backwardation?

Backwardation means the future price is lower than the present spot price. … Normally the futures curve of precious metals is in contango, meaning the future price is higher than the spot price.

What is the difference between spot price and future price known as?

The difference between the spot price and futures price in the market is called the basis. Broadly speaking, futures prices and spot prices are different numbers because the market is always forward-looking.

Why is gold always in contango?

Generally speaking, contango is a normal situation for durable and easily storable commodities which have a cost of carry, such as gold. This is due to the carry costs – higher futures price is a way of paying for these costs. Indeed, gold spends most of the time in contango.

Is copper a contango?

The cash-to-three-month copper spread was back in contango on the London Metal Exchange on Monday May 13 after falling into a backwardation at the end of last week on a spate of buying on the cash contract.

What will be the price of Bitcoin in 2025?

Comparing the BTC Yearly Price Growth
Year Mid-Year End of the Year
2022 $47,124 $49,945
2023 $64,929 $79,538
2024 $87,354 $100,457
2025 $113,373 $126,127
3 days ago

Is crypto futures trading halal?

Margin trading, day trading, options, and futures are considered prohibited by sharia by the “majority of Islamic scholars” (according to Faleel Jamaldeen).

What will be the price of Bitcoin in 2021?

Conclusion: BTC Price Forecast and Long-Term Price Predictions
Year High Low
2021 $140,000 $17,000
2022 $140,000 $42,000
2023 $100,000 $63,000
2024-2025+ $500,000 $275,000

Contango and backwardation review (video)

What is Contango & Backwardation?

Contango vs Backwardation: What They Mean, Why Traders …

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