The Comprehensive Guide to

Passive Income Investing


Learn the secrets of how Paul Tracy generates over $XXX,XXX per month in passive income!

How to Become Financially Independent Through Passive Income Investing

What is Backwardation?

Backwardation describes a downward sloping forward curve in a commodity market. This means that as the price of a commodity for future delivery is lower than the spot price -- the price of a commodity today.

How Does Backwardation Work?

Backwardation starts when the cost of carry – i.e., storage, financing and convenience fees, exceeds the difference between the forward and spot price.

This situation usually arises when a commodity that normally experiences contango faces a positive demand or negative supply shock. When this occurs, short term prices become greater than long term prices because consumers want the commodity immediately, despite the cost to hold the commodity.

Why Does Backwardation Matter?

Backwardation is the opposite of contango. Both effects are important for rational pricing in futures markets, and sometimes present opportunities for investors to arbitrage price discrepancies.

Ask an Expert about Backwardation

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Backwardation.

Be the first to ask a question

If you have a question about Backwardation, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.