Talk:Normal backwardation

Merge with contango?
I strongly agree it should be merged with contango. They are just the two sides of a coin. If the current price is higher than the forward price, we call it backwardation. If the current price is lower than the forward price, we call it contango. — Preceding unsigned comment added by 58.31.46.42 (talk) 04:05, June 30, 2007

Indeed, these pages should be merged — Preceding unsigned comment added by 195.217.52.130 (talk) 09:39, July 5, 2007

I disagree completely. In electronics, attenuation and gain are essentially the same thing with opposite signs, yet there is no mention of gain on the attenuation page and vice versa, and certainly not a combined page for the two. Keep them separate. — Preceding unsigned comment added by 199.46.198.233 (talk) 18:51, July 9, 2007

As long as they refer to one another, separate writeups make sense. Once you start merging related materials in futures, where do you stop? — Preceding unsigned comment added by 204.251.213.4 (talk) 18:41, July 17, 2007

The two articles should be kept separate. They are different things. They may refer to each other and that is helpful but someone who looks up one of the terms should be led to a distinct article that deals with its own topic. — Preceding unsigned comment added by 71.39.60.217 (talk) 15:25, July 23, 2007

We should take into consideration that we speak about the Encyclopedian term and in this case we should sepparate all the deffinitions one from another, otherwise we need to put all the definitions and clarifications (concerning derivatives for example) into one article. —Preceding unsigned comment added by 160.83.32.14 (talk) 13:02, August 30, 2007 (UTC)

They should not be merged. We wouldn't think of merging good/bad, black/white, positive/negative and other opposites. Why then should BW/CT be merged? Sure, one could say that negative contango equals backwardation and vice versa just as "cold" could be substituded by "less warm" or something similar,, meaning we actually only need one notion. However, as it is the market participants have chosen to coin two different words and who are we to say it's redundant? —Preceding unsigned comment added by 80.169.21.62 (talk) 09:20, 21 September 2007 (UTC)
 * Do not merge: Just because they're related that is no reason they can't each have their own article (should we merge Luke Skywalker and Darth Vader just because they're related?). For one thing, each is a topic long enough for its own article. As long as you have a prominent link to Backwardation and an explanation that it is the inverse of Contango - and vice versa - I see no need to merge the articles. ElectricRay 16:16, 1 October 2007 (UTC)

Normal backwardation same as backwardation?
(heading added by Riick (talk) 16:46, 19 July 2011 (UTC))

There seems to be a lot of confusion across the article on the difference between normal backwardation/normal contango and backwardation/contango. The first refer to the relationship between the price of the single contract and the EXPECTED FUTURE SPOT PRICE, while the other refer to the relationship between the price of the front contract compared to the spot price or the price of the next on future contract (by expiry). A market may very well be in a state of contango and normal backwardation at the same time (or viceversa). The article is very confusing, also the comparisons between convenience yield and cost of carry in the various situations are inexact. G.xiloyannis (talk) 15:46, 25 October 2012 (UTC) This article appears to describe "normal backwardation" which is a specific term and not the same as "backwardation". Contango and "normal backwardation" are opposites. Backwardation is something different. Someone more expert than I should correct this and add an article about "normal backwardation". Mark —Preceding unsigned comment added by 136.182.158.153 (talk) 14:59, 21 May 2008 (UTC)

== "Occurence" section seems incorrect ==

I agree. This page confuses "normal backwardation" with "spot price is higher than the futures price". Normal backwardation describes a relation between the futures price and the expected future spot price, not between the futures price and the spot price itself. At least this is how it appears to me, having read investopedia:

http://www.investopedia.com/articles/07/contango_backwardation.asp

Galen100 (talk) 21:22, 11 February 2010 (UTC)

I agree; it's good that the article was renamed to the less ambiguous "normal backwardation" in June 2009, and that the confusion in the occurence section was cleared up. A quick scan of the web indicates that some people use "backwardation" to mean a futures contract is cheaper than the expected spot price at contract maturity, whereas others use it to mean that a futures contract is cheaper than the current spot price. "Backwardation" is thus a slightly ambiguous term. Normal backwardation, in contrast, always seems to mean a futures contract is cheaper than the expected spot price at contract maturity. (Interestingly, this article http://federalexpression.wordpress.com/2011/03/01/market-language-cantango-vs-backwardation/ goes so far as to indicate that "normal contango" is the correct term to use when in contago relative to expected spot price at contract maturity. I'm a bit skeptical about that though!)  Riick (talk) 18:14, 19 July 2011 (UTC)

Suggestions about wording
(heading added by Riick (talk) 16:46, 19 July 2011 (UTC))

I find this page extremely heavy going for what is in fact a reasonably simple term. Pregnant? Couldn't is start out with a simpler explaination:

"Backwardation is a term used principally by traders of commodity futures.  Futures markets allow their participants to buy and sell commodities (grain, oil, metals, etc) at various dates in the future.   Backwardization occurs when it is cheaper to have a product delivered in the future.  While many scenarios can lead to backwardization agricultural commodities will typical exhibit this behavior if an abundant harvest is predicted."

The historical explaination is entirely opaque. If I'm understanding it correctly i think it could read:

"The term arose originally from the situation where a seller, having promised to deliver a good on a particular day, would pay a fee to back out of the deal and delay deliver. Those payments would lower the price the buyer actually paid in the end creating a situation where later delivery was cheaper.   A market that generally exhibited lower prices in the future was said to be backward since presumably in that situation all the seller would rush to sell immediately; that they aren't appears backward."

But I doubt it's that exactly captures why the term arose. 66.30.202.56 (talk) 01:50, 23 May 2008 (UTC)


 * I disagree, the first explanation was (where is it now??) easy to understand and totally correct. But now the article isn't usable anymore. I suggest to include this words again into the article: "Backwardation is a term used principally by traders of commodity futures.  Futures markets allow their participants to buy and sell commodities (grain, oil, metals, etc) at various dates in the future.   Backwardization occurs when it is cheaper to have a product delivered in the future (meaning: the price of the future is lower than the actual spot price).  While many scenarios can lead to backwardization agricultural commodities will typical exhibit this behavior if an abundant harvest is predicted." 178.197.236.3 (talk) 18:55, 10 May 2013 (UTC)

Precious metals are not good examples of backwardation
(heading added by Riick (talk) 16:46, 19 July 2011 (UTC))

Doesn't make a lot of sense to focus the main definition on the precious metals -- where it essentially never occurs. Would be better to focus on ags. 208.105.65.28 (talk) 14:29, 18 June 2009 (UTC)

Yes, backwardation originates in commodity markets. However there is a more serious problem which, I suspect, makes these two sentences from the current writeup seem like nonsense to a commodities trader and very confusing to someone starting from scratch.

"Gold has historically been positive with exception for momentary backwardations (hours) since gold futures started trading on the Winnipeg Commodity Exchange in 1972." "Formally, backwardation means a downward sloping forward curve ...."

Rather than try to explain here, I refer you to a writeup I did called BASIS_and_the_negative_thereof.

Back on the commodities which are not precious metals -- about 65% of the way down this page is a table where I tried to summarize what was normal/commonplace/typical for various commodities and situations.

FrederickNoelChase (talk) 21:04, 25 August 2009 (UTC)

Name of Article
I think the name of the article should be called Backwardation instead of Normal Backwardation. Who supports a page move? Routerlen 15:53, 30 August 2010 (UTC)

Don't move. As best as I can tell from a quick web scan, "normal backwardation" consistently describes the situtation where the futures contract costs less than the expected spot price at contract maturity. "Backwardation", on the other hand, sometimes means that, but sometimes it means when the futures contract costs less than the current spot price. Backwardation is an ambiguous term. This article seems to describe normal backwardation, so why rename it with an ambiguous title? -Riick (talk) 17:50, 19 July 2011 (UTC)


 * There is no such thing as the "expected future spot". So this article describes a non-existing thing (and the red line in the graph is wrongly named). There exists only the actual spot price, and "backwardation" or "contango" has to do with that. Everything else is just a misunderstood interpretation of (historical?) terms. Also it's usual that falling markets are in backwardation while rising markets are in contango. Actually, the price of a future IS the expected future spot! This also explains the price correlation of the future and spot price in the end. 178.197.236.3 (talk) 18:47, 10 May 2013 (UTC)

The Graph
The Graph describs contango as backwardation and vise versa. Please change.- —Preceding unsigned comment added by 84.127.123.97 (talk) 09:01, 17 March 2011 (UTC)

The graph looks OK to me; contago when a futures contract is more expensive than the expected spot price at contract maturity, normal backwardation when a futures contract is less expensive than the expected spot price at contract maturity. Don't change it. Riick (talk) 17:24, 19 July 2011 (UTC)