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Market Intelligence › Basic Terminologies
Two curve shapes, and their direct effect on rollover
Published by The Retail Trader · JUL 25, 2026 · Derivatives & Commodities
The futures price is different from spot, and this gap is not random. It has two names, and both tell you what the market is thinking about that commodity.
Contango is the situation where far contracts are more expensive than spot. This is often normal, because holding it forward carries storage and financing costs.
Backwardation is the opposite — far contracts are cheaper. This usually happens when current supply is tight and people want that commodity today.
For those who hold long positions, this shape is a direct cost or benefit:
• In contango, every roll means buying the more expensive contract — this is a hidden monthly cost.
• In backwardation, the roll works in your favour.
• This is why holding a position in a commodity for a long time gives a return different from the spot's movement.
• Commodity ETFs and funds go through the same roll cost.
If you formed a long view on a commodity by looking at its spot chart, that view does not come through in futures the same way. The roll cost keeps being charged month after month, and over a year it can be bigger than your entire view.
This article is for educational purposes only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.