What is backwardation?

Backwardation is when the current price, or spot price, of an underlying asset is higher than prices trading in the futures market . Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market.

What is backwardation in forex trading?

This situation is called backwardation. For example, when futures contracts have lower prices than the spot price, traders will sell short the asset at its spot price and buy the futures contracts for a profit. This drives the expected spot price lower over time until it eventually converges with the futures price.

What is the difference between contango and backwardation?

A situation when the future price of a commodity is lower than the spot price of the commodity is called backwardation. The opposite of backwardation is contango, in which the future price is higher than the commodity’s spot price. In backwardation, the immediate need to own the commodity outweighs its cost.

When is a market in backwardation?

A market is in backwardation when the futures price is below the expected future spot price for a particular commodity. Backwardation very seldom arises in money commodities like gold or silver. For example, if it costs more to lease silver for 30 days than for 60 days, it might be said that the silver lease rates are in backwardation.