Understanding Backwardation

Source: Khan Academy – Backwardation

Backwardation is the occurrence of near month futures being more expensive than those expiring further in the future. This creates a downward sloping curve for future prices over time. It can happen due to expected or perceived shortages to a commodity for a period of time and as a result, immediate delivery of the commodity would cost more than if it was delivered in the future.

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One thought on “Understanding Backwardation

  1. Pingback: Gold Backwardation Seen by SocGen Prompting ‘Corrective Rally’ (Jul 2013) | livinginabubbleblog

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