Backwardation
Definition · Level 7 · Futures, rates & macro
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Curve shape where later-dated futures trade below nearer ones. In commodities it usually means prompt supply is tight; in index futures, a dividend yield above the financing rate. A rolling long earns positive roll yield if the shape persists.
Example
Brent M1 85.00, M2 84.20: prompt barrels are scarce.
Where Tradecraft teaches it
Level 7 · Futures, rates & macro, in the lesson “The futures curve & commodities”: Front month and rolling, contango vs backwardation, basis and convergence, cash-and-carry, WTI vs Brent, gold.
Related terms
- BasisGap between the spot (cash) price and a futures price, usually spot − futures.
- Cash-and-carryArbitrage when a future trades above fair value: buy the asset, finance (and store) it, sell the future, and hold to expiry.
- ContangoCurve shape where later-dated futures trade above nearer ones (and above spot), typically reflecting carry costs like financing and storage.
- Front monthThe nearest-expiring futures contract that is actively traded — usually the most liquid, and the one a screen means by “crude” or “ES”.
- Futures rollClosing an expiring futures position and reopening it in a later expiry, usually as one calendar-spread trade, to keep exposure past the front month…
- GoldPrecious metal quoted in dollars per troy ounce (XAU/USD).