Exact Matches:
CONTANGO
Situation when a commodity’s future price is higher than its spot price. Whereas financial futures and forwards are invariably priced off the cost of carry of the underlying, the forward or spot prices of commodities are heavily influenced by supply and demand. Contango arises where there is sufficient supply in the spot market or where future supply is thought to be tight.
See also
advance premium forward,
backwardation
Partial Matches:
ADVANCE PREMIUM FORWARD
A forward contract in which the contango is partly payable in advance. This transaction is also known as a flat rate forward or stabilized contango. An advanced premium forward is particularly useful during the early years of a project when the greater contango can provide greater cash flow. The conversion of a standard forward into an advanced premium forward allows for the early realization of hedging values. In this case, the early payment of the contango is at the expense of yield in the later years in a strip of forwards.
CASH AND CARRY
When a contango exists, the premium of the forward position over the prompt generally reflects costs of storage, insurance and finance for that period. When metal is in surplus, the contango may widen to the point where an effective interest rate that is higher than market rates can be locked-in.
COMMODITY FUTURE
A futures contract on a commodity. The first futures (as opposed to forward) contract was for grain and was established in about 1865 on the Chicago Board of Trade. Unlike forwards, futures are generally exchange-traded instruments. Futures can either be in contango (where futures prices are higher than spot prices) or backwardation (where they are lower).