Contango & Backwardation

Futures for different months trade at different prices. Whether later months cost more or less than nearer ones can quietly add to or subtract from a commodity fund’s returns. Here is how it works.

Two shapes of the futures curve

Contango is when later-dated futures cost more than near-dated ones, often reflecting storage and financing costs. Backwardation is the reverse: near-dated futures cost more, usually when supplies are tight right now.

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