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Why is contango normal?
Contango is normal for a non-perishable commodity that has a cost of carry. Such costs include warehousing fees and interest forgone on money tied up (or the time-value-of money, etc.), less income from leasing out the commodity if possible (e.g. gold).
What causes contango and backwardation?
The opposite of backwardation is contango, where the futures contract price is higher than the expected price at some future expiration. The primary cause of backwardation in the commodities’ futures market is a shortage of the commodity in the spot market. Manipulation of supply is common in the crude oil market.
Why is contango bullish?
Contango in commodity futures Because futures contracts are available for different months throughout the year, the price of the contracts changes from month to month. Contango is thus a bullish indicator, showing that the market expects the price of the futures contract to increase steadily into the future.
What is bitcoin contango?
2/ Contango is how you describe a market where the futures price is higher than the spot price. For instance, right now, the “front month” bitcoin futures contract – which expires on October 29 at 11am ET – is trading for $61,900. But the spot price of BTC is only $61,743. 5/ Futures markets aren’t always like this.
What is contango in ETF?
Contango is a situation in which the near-month futures are actually less expensive than those that expire later on. As a result, when the roll process is underway, it can easily result in selling low and buying high. Contango becomes more obvious when investing with leveraged ETFs.
Are oil futures in contango?
In contrast, when the futures curve is not in backwardation, it is in “contango”, meaning that the prices for delivery contracts further out in time increase….Summary.
| Futures contract | Price, $/bbl |
|---|---|
| March | 78.72 |
How do you make money on contango?
Traders with access to both physical oil and storage can make substantial profits in a contango market. A contango is a situation where the futures price of a commodity is higher than the spot price. Another way for traders to profit off a contango market is to place a spread trade.
How do you profit from contango?
What is contango bleed?
Contango bleed is a term for the costs that futures ETFs must take on to renew, or roll, their futures contracts. If the price of the futures contracts is higher than the expiring contract, the ETFs lose a bit of money each instance, and this adds up over time.
Why is contango bad for ETFs?
The most significant disadvantage of contango comes from automatically rolling forward contracts, which is a common strategy for commodity ETFs. Investors who buy commodity contracts when markets are in contango tend to lose some money when the futures contracts expire higher than the spot price.