. Contango: What It Is, Why It Happens, and Backwardation Which is better contango or backwardation? There is no right or wrong answer to this question, as it depends on the trader's individual circumstances and goals. If a trader is looking to buy a commodity and hold it for a long period of time, then they may prefer to wait for a period of backwardation, when the futures price is below the spot price, in order to buy the commodity at a discount. However, if a trader is looking to take advantage of short-term price movements, then they may prefer to trade during a period of contango, when the futures price is higher than the spot price, in order to capture the premium. Are oil futures in backwardation? No, oil futures are not currently in backwardation.
What are contango and backwardation in futures markets? Contango and backwardation are two common pricing structures in the futures market. In a contango market, prices are higher in the future than they are in the present, while in a backwardation market, prices are lower in the future than they are in the present.
Contango is more common than backwardation, as most commodities are produced at a slow and steady pace, meaning that there is typically more supply than demand. This excess supply drives prices down in the present, while the expectation of future demand drives prices up in the future. This results in a contango market.
Backwardation is less common than contango, as it typically occurs when there is an expectation of future shortages. This could be due to a supply shock, such as a major weather event that damages crops, or an increase in demand, such as a new technology that requires a rare mineral. In either case, the expectation of future shortages drives prices up in the present, while the expectation of future abundance drives prices down in the future. This results in a backwardation market.
How do futures pay out? The payout for a futures contract depends on the underlying asset, the contract size, and the tick value. The underlying asset can be a commodity, currency, index, or stock. The contract size is the amount of the underlying asset that is traded. The tick value is the minimum price change that the underlying asset can make.
For example, let's say that you buy a futures contract for crude oil that is for 1,000 barrels. The current price of crude oil is $50 per barrel and the tick value is $0.01. If the price of crude oil goes up to $51 per barrel, then you will make $1,000 (1,000 barrels x $1). If the price of crude oil goes down to $49 per barrel, then you will lose $1,000 (1,000 barrels x $1).
What is the oil futures contango market?
The oil futures contango market is a market where the future price of oil is higher than the current price. This happens when demand for oil is expected to increase in the future, leading to higher prices. The opposite situation, where the future price of oil is lower than the current price, is called a backwardation market.