Is contango bullish?

Contango is thus a bullish indicator, showing that the market expects the price of the futures contract to increase steadily into the future.

How do you make money from backwardation?

In order to profit from backwardation, traders would need to buy a futures contract on gold that trades below the expected spot price and make a profit as the futures price converges with the spot price over time.

What is the difference between contango and normal contango?

The definitions are as follows: Contango is when the futures price is above the expected future spot price. Normal backwardation is when the futures price is below the expected future spot price. 4 This is desirable for speculators who are net long in their positions: they want the futures price to increase.

Is backwardation good or bad?

As a rule of thumb, if you’re investing in commodities ETFs, backwardation is good and contango is bad. Investors can never be certain which way the market will go. Some futures, like pigs, wheat and natural gas are almost always in contango. Others, such as soybeans and gasoline, are often in backwardation.

Is contango good?

Contango tends to cause losses for investors in commodity ETFs that use futures contracts, but these losses can be avoided by buying ETFs that hold actual commodities.

How does contango make money?

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.

Why is oil in contango?

A contango market occurs when prompt crude oil prices fall below those further out in the future. There are futures contracts for each month going out many years. These prices reflect the market’s current as well as future expectations of oil prices.

Which is better contango or backwardation?

During Contango as the future price is higher so the profit is maximum when you sell it in the future. During Backwardation as the future price is going to decrease further in the future, purchasing it later for an investor would be a greater profit.

Why is bitcoin in contango?

In the bitcoin market, contango mainly results from bullish price expectations. Such contango could prove a liability, though, if the U.S. Securities and Exchange Commission approves a bitcoin-futures ETF.

What is Bitcoin contango?

However, the fund may fail to match bitcoin’s price performance thanks to a scary-sounding market dynamic known as “contango bleed.” This refers to fund underperformance that could theoretically occur because longer-dated futures contracts are trading at higher prices than shorter-dated contracts.

Is crude oil in contango?

Contango is normal for a non-perishable commodity, like crude oil and products, which have a cost of carry. Such costs include storage fees and interest forgone on money that is tied up in inventory.