22:
1395:
210:. Settlement days were on a fixed schedule (such as fortnightly) and a short seller did not have to deliver stock until the following settlement day, and on that day could "carry over" their position to the next by paying a backwardation fee. This practice was common before 1930, but came to be used less and less, particularly since
229:, when used without the qualifier "normal", can be somewhat ambiguous. Although sometimes used as a synonym for normal backwardation (where a futures contract price is lower than the expected spot price at contract maturity), it may also refer to the situation where a futures contract price is merely lower than the
97:
In a state of backwardation, futures contract prices include compensation for the risk transferred from the underlying asset holder to the purchaser of the futures contract. This means the expected spot price on expiry is higher than the price of the futures contract. Backwardation very seldom arises
133:
It is argued that backwardation is abnormal, and suggests supply insufficiencies in the corresponding (physical) spot market. However, many commodities markets are frequently in backwardation, especially when the seasonal aspect is taken into consideration, e.g., perishable and/or soft commodities.
64:
be downward sloping (i.e. "inverted"), since contracts for further dates would typically trade at even lower prices. 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
25:
The graph depicts how the price of a single forward contract will behave through time in relation to the expected future price. A contract in backwardation will increase in value until it equals the spot price of the underlying at maturity. Note that this graph does not show the
149:, backwardation is not an abnormal market situation, but rather arises naturally as "normal backwardation" from the fact that producers of commodities are more prone to hedge their price risk than consumers. The academic dispute on the subject continues to this day.
117:
for 30 days than for 60 days, it might be said that the silver lease rates are "in backwardation". Negative lease rates for silver may indicate bullion banks require a risk premium for selling silver futures into the market.
217:
The fee here did not indicate a near-term shortage of stock the way backwardation means today, it was more like a "lease rate", the cost of borrowing a stock or commodity for a period of time.
203:, backwardation was a fee paid by a seller wishing to defer delivering stock they had sold. This fee was paid either to the buyer, or to a third party who lent stock to the seller.
106:
warehouses. Gold has historically been positive with exception for momentary backwardations (hours) since gold futures started trading on the
Winnipeg Commodity Exchange in 1972.
183:
In 2013, the wholesale commercial gas market entered backwardation during the month of March. The 2-year contract prices fell below the price of 1-year contracts.
94:(when the forward price is less than the spot plus carry), or when there can be no delivery arbitrage because the asset is not currently available for purchase.
938:
513:
98:
in money commodities like gold or silver. In the early 1980s, there was a one-day backwardation in silver while some metal was physically moved from
1278:
264:
968:
1100:
445:
836:
1338:
506:
418:
1425:
1273:
918:
1313:
851:
705:
499:
932:
390:
Zvi Bodie & Victor
Rosansky, "Risk and Return in Commodity Futures", FINANCIAL ANALYSTS' JOURNAL (May/June 1980)
1110:
413:
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1328:
983:
928:
1283:
953:
943:
811:
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1232:
1080:
1065:
1030:
973:
400:
177:
103:
1293:
1144:
1060:
637:
470:
458:
200:
958:
72:. Contango refers to "negative basis" where the future price is trading above the expected spot price.
75:
Note: In industry parlance backwardation may refer to the situation that futures prices are below the
1247:
1204:
1184:
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846:
781:
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730:
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531:
261:
173:
963:
1252:
1040:
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165:
142:
1420:
1303:
1288:
1257:
1242:
1209:
1075:
866:
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522:
323:
99:
449:, Mike Riess, 2003, paper at the International Precious Metals Institute 27th Annual Conference
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283:
The curves in question plot market prices for various contracts at different maturities—cf.
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21:
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27:
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345:
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923:
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627:
284:
196:, the term originated in mid-19th century England, originating from "backward".
1379:
1015:
1010:
776:
662:
113:, when analogous price patterns arise. For example, if it costs more to lease
87:
53:
569:
319:
16:
Situation when futures prices are below the expected spot price at maturity
1394:
1139:
861:
758:
579:
242:
193:
69:
300:
491:
461:
advice to members 15 January 1999, reproduced at aluNET International
161:
114:
109:
The term is sometimes applied to forward prices other than those of
68:
The opposite market condition to normal backwardation is known as
20:
465:
130:
that is greater than the risk free rate and the carrying costs.
495:
454:
LME launches and investigation in primary aluminium trading
41:, is the market condition where the price of a commodity's
294:
292:
82:
Backwardation occurs when the difference between the
1347:
1266:
1223:
1119:
996:
904:
767:
676:
613:
547:
538:
30:(which plots against maturities on the horizontal).
206:The purpose was normally speculative, allowing
56:at contract maturity. The resulting futures or
466:New Orleans – Temporary Suspension of Warrants
507:
301:"Facts and Fantasies about Commodity Futures"
8:
401:"Wholesale gas market – an important update"
299:Gorton, Gary; Rouwenhorst, K. Geert (2006).
157:Notable examples of backwardation include:
544:
514:
500:
492:
368:"RED ALERT: GOLD BACKWARDATION!!!(page 3)"
433:, and fifteenth edition (1974), articles
481:, Articles on Contango and Backwardation
1339:Power reverse dual-currency note (PRDC)
1279:Constant proportion portfolio insurance
254:
221:Normal backwardation vs. backwardation
188:Origin of term: London Stock Exchange
7:
1274:Collateralized debt obligation (CDO)
164:circa 1990, apparently arising from
366:Antal E. Fekete (2 December 2008).
176:in what has come to be called the "
14:
262:Contango Vs. Normal Backwardation
1393:
473:press release 6 September 2005.
1101:Year-on-year inflation-indexed
141:(1930, chapter 29), economist
1:
1111:Zero-coupon inflation-indexed
1314:Foreign exchange derivative
706:Callable bull/bear contract
214:were reintroduced in 1958.
1442:
446:Modern Market Manipulation
435:Contango and Backwardation
308:Financial Analysts Journal
1388:
1215:Stock market index future
529:
1334:Mortgage-backed security
1329:Interest rate derivative
1304:Equity-linked note (ELN)
1289:Credit-linked note (CLN)
37:, also sometimes called
1284:Contract for difference
585:Risk-free interest rate
419:eleventh edition (1911)
414:Encyclopædia Britannica
320:10.2469/faj.v62.n2.4083
1066:Forward Rate Agreement
178:Sumitomo copper affair
126:This is the case of a
31:
1426:Derivatives (finance)
1294:Credit default option
638:Employee stock option
471:London Metal Exchange
459:London Metal Exchange
201:London Stock Exchange
49:is trading below the
24:
1248:Inflation derivative
1233:Commodity derivative
1205:Single-stock futures
1195:Normal backwardation
1185:Interest rate future
1026:Conditional variance
532:Derivative (finance)
478:investopedia Website
267:26 July 2014 at the
174:Sumitomo Corporation
35:Normal backwardation
1400:Business portal
1253:Property derivative
199:In that era on the
166:market manipulation
143:John Maynard Keynes
1258:Weather derivative
1243:Freight derivative
1225:Exotic derivatives
1145:Commodities future
832:Intermarket spread
595:Synthetic position
523:Derivatives market
32:
1408:
1407:
1309:Equity derivative
1299:Credit derivative
1267:Other derivatives
1238:Energy derivative
1200:Perpetual futures
1081:Overnight indexed
1031:Constant maturity
992:
991:
939:Finite difference
872:Protective option
147:commodity markets
139:Treatise on Money
128:convenience yield
111:futures contracts
90:is less than the
1433:
1398:
1397:
1170:Forwards pricing
944:Garman–Kohlhagen
545:
516:
509:
502:
493:
405:
404:
403:. 14 March 2013.
397:
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259:
47:futures contract
1441:
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1434:
1432:
1431:
1430:
1411:
1410:
1409:
1404:
1392:
1384:
1370:Great Recession
1365:Government debt
1343:
1319:Fund derivative
1262:
1219:
1180:Futures pricing
1155:Dividend future
1150:Currency future
1133:
1115:
988:
964:Put–call parity
900:
887:Vertical spread
822:Diagonal spread
792:Calendar spread
763:
672:
609:
534:
525:
520:
409:
408:
399:
398:
394:
389:
385:
375:
373:
370:
365:
364:
360:
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342:"Backwardation"
340:
339:
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303:
298:
297:
290:
282:
278:
269:Wayback Machine
260:
256:
251:
239:
223:
190:
155:
145:argued that in
124:
17:
12:
11:
5:
1439:
1437:
1429:
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1423:
1413:
1412:
1406:
1405:
1403:
1402:
1389:
1386:
1385:
1383:
1382:
1377:
1375:Municipal debt
1372:
1367:
1362:
1360:Corporate debt
1357:
1351:
1349:
1345:
1344:
1342:
1341:
1336:
1331:
1326:
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1212:
1207:
1202:
1197:
1192:
1187:
1182:
1177:
1172:
1167:
1162:
1160:Forward market
1157:
1152:
1147:
1142:
1136:
1134:
1132:
1131:
1126:
1120:
1117:
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1114:
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1103:
1098:
1093:
1088:
1083:
1078:
1073:
1068:
1063:
1058:
1053:
1048:
1043:
1041:Credit default
1038:
1033:
1028:
1023:
1018:
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993:
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989:
987:
986:
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916:
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902:
901:
899:
898:
884:
879:
874:
869:
864:
859:
854:
849:
844:
839:
837:Iron butterfly
834:
829:
824:
819:
814:
809:
807:Covered option
804:
799:
794:
789:
784:
779:
773:
771:
765:
764:
762:
761:
756:
751:
746:
745:Mountain range
743:
738:
733:
728:
723:
718:
713:
708:
703:
698:
693:
688:
682:
680:
674:
673:
671:
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665:
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640:
635:
630:
625:
619:
617:
611:
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582:
577:
572:
567:
562:
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551:
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536:
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530:
527:
526:
521:
519:
518:
511:
504:
496:
490:
489:
474:
462:
450:
442:
431:Stock Exchange
407:
406:
392:
383:
358:
333:
288:
276:
253:
252:
250:
247:
246:
245:
238:
235:
222:
219:
189:
186:
185:
184:
181:
170:Yasuo Hamanaka
154:
151:
123:
120:
15:
13:
10:
9:
6:
4:
3:
2:
1438:
1427:
1424:
1422:
1419:
1418:
1416:
1401:
1396:
1391:
1390:
1387:
1381:
1378:
1376:
1373:
1371:
1368:
1366:
1363:
1361:
1358:
1356:
1355:Consumer debt
1353:
1352:
1350:
1348:Market issues
1346:
1340:
1337:
1335:
1332:
1330:
1327:
1325:
1324:Fund of funds
1322:
1320:
1317:
1315:
1312:
1310:
1307:
1305:
1302:
1300:
1297:
1295:
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1282:
1280:
1277:
1275:
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1236:
1234:
1231:
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1222:
1216:
1213:
1211:
1208:
1206:
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1201:
1198:
1196:
1193:
1191:
1188:
1186:
1183:
1181:
1178:
1176:
1173:
1171:
1168:
1166:
1165:Forward price
1163:
1161:
1158:
1156:
1153:
1151:
1148:
1146:
1143:
1141:
1138:
1137:
1135:
1130:
1127:
1125:
1122:
1121:
1118:
1112:
1109:
1107:
1104:
1102:
1099:
1097:
1094:
1092:
1089:
1087:
1084:
1082:
1079:
1077:
1076:Interest rate
1074:
1072:
1069:
1067:
1064:
1062:
1059:
1057:
1054:
1052:
1049:
1047:
1044:
1042:
1039:
1037:
1034:
1032:
1029:
1027:
1024:
1022:
1019:
1017:
1014:
1012:
1009:
1007:
1004:
1003:
1001:
999:
995:
985:
982:
980:
977:
975:
972:
970:
969:MC Simulation
967:
965:
962:
960:
957:
955:
952:
950:
947:
945:
942:
940:
937:
934:
930:
929:Black–Scholes
927:
925:
922:
920:
917:
915:
912:
911:
909:
907:
903:
896:
892:
888:
885:
883:
882:Risk reversal
880:
878:
875:
873:
870:
868:
865:
863:
860:
858:
855:
853:
850:
848:
845:
843:
840:
838:
835:
833:
830:
828:
825:
823:
820:
818:
815:
813:
812:Credit spread
810:
808:
805:
803:
800:
798:
795:
793:
790:
788:
785:
783:
780:
778:
775:
774:
772:
770:
766:
760:
757:
755:
752:
750:
747:
744:
742:
739:
737:
736:Interest rate
734:
732:
731:Forward start
729:
727:
724:
722:
719:
717:
714:
712:
709:
707:
704:
702:
699:
697:
694:
692:
689:
687:
684:
683:
681:
679:
675:
669:
666:
664:
661:
659:
658:Option styles
656:
654:
651:
649:
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634:
631:
629:
626:
624:
621:
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612:
606:
603:
601:
598:
596:
593:
591:
588:
586:
583:
581:
578:
576:
575:Open interest
573:
571:
568:
566:
563:
561:
558:
556:
555:Delta neutral
553:
552:
550:
546:
543:
541:
537:
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528:
524:
517:
512:
510:
505:
503:
498:
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494:
488:
484:
480:
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472:
468:
467:
463:
460:
456:
455:
451:
448:
447:
443:
440:
436:
432:
428:
424:
423:Backwardation
420:
416:
415:
411:
410:
402:
396:
393:
387:
384:
369:
362:
359:
347:
343:
337:
334:
329:
325:
321:
317:
313:
309:
302:
295:
293:
289:
286:
280:
277:
274:
270:
266:
263:
258:
255:
248:
244:
241:
240:
236:
234:
232:
228:
227:backwardation
220:
218:
215:
213:
209:
208:short selling
204:
202:
197:
195:
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182:
179:
175:
171:
167:
163:
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158:
152:
150:
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144:
140:
135:
131:
129:
121:
119:
116:
112:
107:
105:
101:
95:
93:
92:cost of carry
89:
85:
84:forward price
80:
78:
73:
71:
66:
63:
59:
58:forward curve
55:
52:
48:
44:
40:
39:backwardation
36:
29:
28:forward curve
23:
19:
1194:
1175:Forward rate
1086:Total return
974:Real options
877:Ratio spread
857:Naked option
817:Debit spread
648:Fixed income
590:Strike price
486:
485:Stock Market
482:
476:
464:
452:
444:
439:Stock Market
438:
434:
430:
426:
422:
412:
395:
386:
374:. Retrieved
361:
349:. Retrieved
346:Investopedia
336:
314:(2): 47–68.
311:
307:
279:
273:Investopedia
272:
257:
233:spot price.
230:
226:
224:
216:
205:
198:
191:
156:
138:
136:
132:
125:
108:
96:
81:
79:spot price.
76:
74:
67:
61:
50:
38:
34:
33:
18:
1106:Zero Coupon
1036:Correlation
984:Vanna–Volga
842:Iron condor
628:Bond option
421:, articles
376:20 December
285:yield curve
1415:Categories
1380:Tax policy
1096:Volatility
1006:Amortising
847:Jelly roll
782:Box spread
777:Backspread
769:Strategies
605:Volatility
600:the Greeks
565:Expiration
249:References
122:Occurrence
88:spot price
54:spot price
1421:Arbitrage
1071:Inflation
1021:Commodity
979:Trinomial
914:Bachelier
906:Valuation
787:Butterfly
721:Commodore
570:Moneyness
225:The term
62:typically
1210:Slippage
1140:Contango
1124:Forwards
1091:Variance
1051:Dividend
1046:Currency
959:Margrabe
954:Lattices
933:equation
919:Binomial
867:Strangle
862:Straddle
759:Swaption
741:Lookback
726:Compound
668:Warrants
643:European
623:American
615:Vanillas
580:Pin risk
560:Exercise
427:Contango
328:14880480
265:Archived
243:Contango
237:See also
194:contango
153:Examples
86:and the
70:contango
65:future.
51:expected
1129:Futures
749:Rainbow
716:Cliquet
711:Chooser
691:Barrier
678:Exotics
540:Options
351:21 June
231:current
212:options
77:current
43:forward
1190:Margin
1056:Equity
949:Heston
852:Ladder
802:Condor
797:Collar
754:Spread
701:Binary
696:Basket
326:
162:Copper
115:silver
60:would
1061:Forex
1016:Basis
1011:Asset
998:Swaps
924:Black
827:Fence
686:Asian
548:Terms
371:(PDF)
324:S2CID
304:(PDF)
192:Like
100:COMEX
895:Bull
891:Bear
633:Call
483:and
437:and
429:and
378:2008
353:2020
104:CBOT
663:Put
316:doi
172:of
168:by
137:In
102:to
45:or
1417::
893:,
653:FX
469:,
457:,
425:,
417:,
344:.
322:.
312:62
310:.
306:.
291:^
271:,
180:".
935:)
931:(
897:)
889:(
515:e
508:t
501:v
487:.
441:.
380:.
355:.
330:.
318::
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
