Backwardation

Backwardation
A theory developed in respect to the price of a futures contract and the contract's time to expire. Backwardation says that as the contract approaches expiration, the futures contract will trade at a higher price compared to when the contract was further away from expiration. This is said to occur due to the convenience yield being higher than the prevailing risk free rate.

When backwardation does occur in a futures market it has been suggested that an individual in the short position would benefit the most by delivering as late as possible.

Backwardation in futures contracts was called "normal backwardation" by economist John Maynard Keynes. This is because he believed that a price movement like the one suggested by backwardation was not random but consistent with the prevailing market conditions.

Backwardation is the opposite of contango.


Investment dictionary. . 2012.

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  • Backwardation — is a futures market term: the situation in which, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery. One says that the forward… …   Wikipedia

  • Backwardation — Backwardation, manchmal auch inkorrekterweise als backwardization bezeichnet, ist ein Zustand auf Future Märkten, bei welchem Verträge, die ihrem Enddatum näher liegen, zu höheren Preisen gehandelt werden als Verträge, die noch länger laufen. Der …   Deutsch Wikipedia

  • Backwardation — Back war*da tion, n. [Backward, v. t. + ation.] (Stock Exchange) The seller s postponement of delivery of stock or shares, with the consent of the buyer, upon payment of a premium to the latter; also, the premium so paid. See {Contango}. Biddle.… …   The Collaborative International Dictionary of English

  • Backwardation — (engl., spr. Bäckwärdeschn), bei Staatspapieren Zinsen, welche der Verkäufer noch tragen muß …   Pierer's Universal-Lexikon

  • Backwardation — (engl., spr. bäck ŭardēsch n), beim Handel mit Wertpapieren die noch vom Verkäufer zu tragenden Zinsen; dann soviel wie Deport (s. d.). An der Londoner Börse ist B. der übliche Ausdruck für das Ausleihen von Effekten von einer Liquidation zur… …   Meyers Großes Konversations-Lexikon

  • Backwardation — (engl. Bäckwardäschn), bei dem Handel mit Staatspapieren die dem Verkäufer noch zufallenden Zinsen …   Herders Conversations-Lexikon

  • backwardation — A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month. This may occur when the costs of storing the product until eventual delivery are effectively subtracted from the price today.… …   Financial and business terms

  • Backwardation — A market condition in which futures prices are lower in the distant delivery months than in the nearest delivery month. This situation may occur in when the costs of storing the product until eventual delivery are effectively subtracted from the… …   Financial and business terms

  • backwardation — noun The situation in a futures market where prices for future delivery are lower than prices for immediate (or nearer) delivery. Generally arising from a near term shortage of a commodity. 1991: gold has never gone into backwardation in any… …   Wiktionary

  • Backwardation — …   Википедия

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