What Is Contango & Backwardation? TradeSmart Knowledge Base

Normally, one reason for backwardation is when there is an unexpected surge in demand that suppliers cannot meet with an instant increase in output. In such cases, nearer contracts become more expensive. If you are planning to avail a Home Loan, then it is crucial for you to understand under what conditions your bank is sanctioning the loan. You must understand each and every term written on the loan agreement or else you will end up choosing a lender who charges high interest or with tough terms and conditions. To avoid this, just log on to our website and understand the meaning of financial terms with the Financial Dictionary.

• No need to issue cheques by investors while subscribing to IPO.
• Super-contango is viable as long as the spot plus storage cost remains below the futures price.
• Monitor the latest movements within the Contango Holdings PLC real time stock price chart below.
• You can avoid this by understanding financial terms and make smart investment decisions.

The negative plunge was for the WTI contract for May, which expired on Tuesday 20th April, which was the day when the contract owner was to take delivery. The oil storage terminal in Cushing, Oklahoma where WTI is delivered had no further capacity to store oil. Grey market is a market for dealing in listed securities.

The default settings are specifically for Bitmex XBTU19 and XBTZ19 futures contracts. Also, it seems that Tradingview does not keep charts of expired contracts. This indicator shows the popular crypto exchanges for Bitcoin spot and futures .

PSU bank stock jumps more than 17% to reach new 52-week high

Backwardation is often seen as a long-term indication of price deflation. Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. It is hard to say that Contango is bad, because it is a normal occurrence in the futures market. However, there is a cost that contango imposes, especially if you are long on the contract. For example, contango occurs when the futures curve slopes upwards. That means; the futures price is more than the spot price.

It’s therefore difficult for anyone to take advantage of lower gasoline prices if there is reduced mobility. With producers unable to sell and consumers unable to buy, this leaves a high supply of oil with no one able to cash in on it. As per IHS Markit,a research firm, the oil demand could plummet down as much as 14 million barrels a day , by May-Jun this year. The June WTI is also falling but is currently stabilised at around $16.60. Holders of this contract hope that the consumption will increase by June, which will allow cheaper storage for the stock when they take the delivery. This could be further facilitated by the agreement between the major oil producers to cut down in oil production, as storage remains a major issue.

Futures contract prices are available on the NSE website and also on the trading terminals. You just need to define the exact specification of the futures like which stock or which index and which particular monthly contract (near month, mid-month, or far month). Once that is specified, you can see the futures contract price in front of you on the screen. You can then buy or sell the futures contract at the stated price just like you buy and sell stocks in the market using your trading account. In any contango, the spot price is lower than the futures price which results in an upward sloping forward curve.

Contango Holdings News & Analysis

U.S. West Texas Intermediate crude futures climbed 23 cents, or 0.6%, to $39.07 a barrel at 0209 GMT, while Brent crude futures rose 18 cents, or 0.4%, to $41.69 a barrel. The third important reason for contango is the cost of carrying, which is also called the interest cost. There is a time value or time cost to futures since you are going to deliver the product only after a period of 2 or 3 months.

Therefore, the theoretical cost of the commodity futures would be Rs.5,250 i.e. Now the futures price is Rs.5,150 while the theoretical futures prices expressed as a sum of spot price and cost of carrying is Rs.5,250. That shows negative expectations of spot price embedded in the futures price and hence this shows a contract, not in contango but backwardation.

Commodities Futures: Use hedging tool to reduce your risk exposure

Many financial intermediaries misguide you to make quick profits. You can avoid this by understanding financial terms and make smart investment decisions. We have developed this Financial Dictionary that could be used by anyone for free on our website. We have provided the meanings of almost all the financial terms along with the context in which they can be used.

Here’s a look at the how the key commodities are likely to perform in today’s trade. The financial incentive to store, known in trader jargon as contango, has all but vanished. Minimum margins are based on a combination of SPAN margins for single-day volatility and the exposure How to Choose a Forex Broker margin which is fixed by the exchange as a fixed percentage. Normally, additional margins may be applicable on a case-by-case basis. This certificate demonstrates that IIFL as an organization has defined and put in place best-practice information security processes.

Saudi Arabia is expected to increase the July OSP for Arab Light crude by $3.80 a barrel on average. Bank of America joins strategists at UBS Securities LLC in warning investors to prepare for a mean reversion in volatility. Global crude markets will be center stage this week in the final countdown to Opec’s next meeting.

Term & Policy

This is a double bonanza of increasing your efficiency and fetching clients more money. Financial Dictionary is a dictionary or database that contains the meaning of all financial terms. Financial Dictionary has been created to help anyone, interested in understanding financial terms. It is extremely important to know what the financial terms mean when signing on terms and conditions. When availing financial products, you can be easily cheated if you don’t know what you have signed up for. To avoid this, you must be aware on what the terms really mean.

Using your mobile phone camera, scan the code below and download the Kindle app. In mid-August, the gasoline market was in backwardation—gasoline for delivery in September was $1.2783 a gallon, but those who could wait until October received a discount ($1.2284 gitlab vs github vs bitbucket vs azure devops a gallon). This is where contango and backwardation come into play. The Indian finance minister suggested against using cryptocurrency.The law enforcement organization blocked the assets of two crypto exchanges.At a BJP Economic Cell event on Saturday,…

KKR’s Independence, Contango to merger in $5.7 billion oil and gas deal

Is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, difference between client side and server side javascript entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others. This indicator measures value of basis of current Futures contracts compared to spot.

If a futures contract in which an ETF invests is experiencing contango, a fund may be forced to sell low and buy high each time it rolls over to the next contract. In backwardation, the spot price is higher than future prices and generates a typical downward sloping forward curve. Backwardation could occur in physically-delivered contracts because there may be a benefit to owning the physical material, such as keeping a production process running. This is known as the convenience yield, which is an implied return on warehouse inventory.

The futures premium is just the excess of the futures price over the spot price. Let us understand contango with 3 different situations. Oil is contracted in the futures market and does not involve the physical delivery of the commodity.

Internationally, there are two benchmarks for oil futures. These are North Sea Brent Crude and West Texas Intermediate . North Sea Brent is traded on the Intercontinental Exchange by countries in Europe, Africa and the Middle East, while WTI is traded in North America on the New York Mercantile Exchange or NYMEX. In India, trading of oil is done in Multi Commodity Exchange or MCX. Finally, there is an important aspect of expectations or expected spot price.

We will come back to the cost of carrying later but for now, let us focus on the difference between contango and futures premium. The price of a futures contract tends to reflect the cost of storage, insurance, financing, and other expenses incurred by the producer as the commodity awaits delivery. So, typically, the further in the future the maturity date, the higher the price of the contract. If the opposite is true, and the price of a longer-term contract is lower than the price of one with a closer expiration date, the relationship is described as backwardation.

Tight crude supplies in Europe have eased as refiners have piled up stocks ahead of the Dec. 5 European Union embargo on Russian crude, putting pressure on physical crude markets across Europe, Africa and the United States. No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account.”

It is called a Black Swan even as it happens very rarely. In the aftermath of the preventive measures against the spread of Coronavirus, there were severe economic repercussions. Weak demand and too much supply led to a sudden spurt in demand for storage of oil, which set in motion the super contango as the storage spaces quickly started getting used up. Contango comprises a number of factors like the interest cost or capital opportunity cost, storage charges, demurrage charges, insurance, bullishness factor etc.