Contango

The price of an asset for forward delivery is usually above the price you would pay today...

The price of an asset for forward delivery is usually above the price you would pay today. For example, if I sell you a ton of copper now, you'll then have the hassle of storing and insuring it. If you want me to store and insure it for, say, three months before delivering it, I will charge you those 'costs of carry' on top of the 'cash price'. I will also add a bit for the fact that my money could be earning interest instead of being tied up in one ton of copper. When the price of an asset for future/forward delivery is above the cash price, the market is said to be in 'contango'. The reverse situation is unusual (perhaps a short-term supply scare is driving up the cash price) and is known as 'backwardation'.

Watch Tim Bennett's video tutorial: What are 'contango' and 'backwardation'?

Recommended

Commodities look cheap
Commodities

Commodities look cheap

Gold may be on a bull run, but industrial commodities, including copper, zinc and aluminium, remain cheap.
17 Jan 2020
Oil is dirt cheap and going higher – here’s the best ways to invest
Oil

Oil is dirt cheap and going higher – here’s the best ways to invest

After its crash earlier this year oil is still extraordinarily cheap. But supply is short and demand is only going to rise, says Dominic Frisby. Here,…
25 Nov 2020
What to buy as the pandemic’s pent-up demand is finally released
UK Economy

What to buy as the pandemic’s pent-up demand is finally released

As economies reopen, says Merryn Somerset Webb, people are going to start spending again. And when they do, here’s what you want to be holding.
23 Nov 2020
You may not have heard of royalty companies, but they’re a great way to invest in gold
Gold

You may not have heard of royalty companies, but they’re a great way to invest in gold

Royalty companies provide funding to gold miners in exchange for a share of production revenues. And they have been performing much better than the mi…
11 Nov 2020

Most Popular

The next 20 years: five new technologies on the horizon
Global Economy

The next 20 years: five new technologies on the horizon

What will everyday life be like in two decades’ time? Matthew Partridge peers into his crystal ball.
12 Nov 2020
This week’s rally in value stocks is just the beginning
Value investing

This week’s rally in value stocks is just the beginning

The arrival of a vaccine this week saw huge gains in the markets and investors switching out of big-tech growth stocks and into “value” stocks in more…
13 Nov 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Nov 2020