{"id":175907,"date":"2021-02-10T15:59:00","date_gmt":"2021-02-10T20:59:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/futures-prices-contango-backwardation\/"},"modified":"2023-04-25T20:52:43","modified_gmt":"2023-04-26T00:52:43","slug":"futures-prices-contango-backwardation","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/futures-prices-contango-backwardation\/","title":{"rendered":"Futures Prices: Contango & Backwardation"},"content":{"rendered":"

The usual spread between prices tells us that forward prices are higher than current prices. This situation, referred to as \u2018contango\u2019<\/strong> is quite typical, due to a variety of factors such as inflation, insurance, storage and the investor\u2019s psychology.<\/p>\n

However, forward prices may fall below current market prices either on a short-term basis or for a sustained period. When this happens, investors refer to \u2018backwardation\u2019<\/strong>, which might occur when there has been, or there is expected to be, a shortage of the product in the near-term, yet production is widely expected to resume in the coming weeks and months.<\/p>\n

Backwardation gets right to the very heart of imminent supply and demand.<\/strong><\/p>\n

Now, at this point, you may be wondering why your next-door neighbor invests in corn or crude oil, and yet you haven\u2019t seen their backyard crammed with stalks of corn or flooded in petroleum.<\/p>\n

This is primarily because investors in the futures market are able to transact, and take positions in, and yet never actually own the commodity or product that they invest in.<\/p>\n

At the same time, the liquid nature of most futures markets makes it a viable environment for producers to offset risk and ultimately transact physical delivery.<\/p>\n","protected":false},"excerpt":{"rendered":"

Explanation of Futures Prices: Contango & Backwardation.<\/p>\n","protected":false},"author":850,"featured_media":221429,"parent":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":{"0":"post-175907","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-interactive-brokers","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nArchives | Traders' Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"Understand Futures Price concepts, Contango & Backwardation.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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