Educational content. This article defines contango and backwardation and shows how to measure the slope of a futures curve. It does not constitute investment advice or a recommendation. CFD trading carries significant risk of loss and may not be suitable for all investors.
Contango is a futures market in which later delivery months are priced above nearer ones; backwardation is the opposite, with later months priced below nearer ones. Measured in percent, a 3-month contract at 81.50 against a 1-month contract at 80.00 is a premium of 1.875% over three months, about 7.5% a year.
This article defines both terms, shows how to read the slope as a number, and explains what drives the curve. Rollover mechanics for CFDs are covered elsewhere.
What Do Contango and Backwardation Mean?
Contango and backwardation describe the shape of the futures curve, which is the list of prices for the same commodity at different delivery dates. In contango the curve slopes up from the nearest month to the furthest. In backwardation it slopes down.
The two terms say nothing about whether the price of the commodity is rising or falling. They describe how the market prices time: what it costs to receive the commodity later instead of now.
| Feature | Contango | Backwardation |
|---|---|---|
| Later month vs nearer month | Higher | Lower |
| Slope of the curve | Upward | Downward |
| Typical reading | Holding the physical commodity has a net cost | Holding the physical commodity has a net benefit |
| Sign of the 1-month to 4-month gap | Positive | Negative |
| Long futures position held to expiry, spot flat | Price converges down toward spot | Price converges up toward spot |
| Short futures position held to expiry, spot flat | Gains from the same convergence | Loses from the same convergence |
The table is arithmetic about price levels. It does not predict which shape comes next.
A third state exists. When the months are equal the curve is flat, and a curve can be in contango at the front and backwardation further out, because each segment has its own slope.
How Do You Read the Slope of a Futures Curve in Percent?
The slope is the price difference between two contracts divided by the nearer price, and it is comparable across markets only after it is scaled to the same period. A gap of 1.00 means little on its own; 1.00 on 80.00 is 1.25%, while on 4,200 it is 0.02%.
An illustrative oil curve, with prices that are examples and not market data:
| Contract | Price | Step from previous month | Step as % of previous | Scaled to a year (x12) |
|---|---|---|---|---|
| 1 month | 80.00 | n/a | n/a | n/a |
| 2 months | 80.60 | +0.60 | 0.750% | 9.00% |
| 3 months | 81.10 | +0.50 | 0.620% | 7.44% |
| 4 months | 81.50 | +0.40 | 0.493% | 5.92% |
The whole curve from 1 month to 4 months has a premium of 81.50 - 80.00 = 1.50. As a share of the nearer price this is 1.50 / 80.00 = 1.875% over three months, and 1.875% x 4 = 7.5% when scaled to a year. The steps shrink from 0.60 to 0.40, so the curve is in contango and flattening toward the back.
The same arithmetic in the other direction gives backwardation. With a 1-month price of 80.00 and a 4-month price of 78.20, the gap is -1.80, which is -2.25% over three months and -9.0% scaled to a year.
On a 100-barrel lot, the 1.50 premium in the first curve is worth 1.50 x 100 = USD 150 per lot. That is the price difference between the two contracts, not a fee. What it costs a position depends on how the position is held, which why the oil futures roll changes CFD prices covers step by step.
Two cautions apply to annualised figures. They assume the slope persists, which curves often do not do, and they are a way of comparing curves, not a rate anyone earns or pays.
What Creates Contango: The Cost-of-Carry Model?
Contango is created by the cost of carrying the commodity from today to the delivery date. A buyer who wants the commodity in three months can instead buy it now and hold it, so the later price should not exceed spot by more than the cost of holding. That limit is called full carry.
Full carry for a storable commodity has two parts:
- Financing: the interest on the money tied up in the commodity, spot x rate x time.
- Storage and insurance: a cost per unit per month.
With illustrative inputs of spot 80.00, a 4% annual financing rate and 0.30 per barrel per month for storage and insurance:
| Months to delivery | Financing (80.00 x 4% x m/12) | Storage (0.30 x m) | Full-carry premium | Full-carry price |
|---|---|---|---|---|
| 1 | 0.27 | 0.30 | 0.57 | 80.57 |
| 2 | 0.53 | 0.60 | 1.13 | 81.13 |
| 3 | 0.80 | 0.90 | 1.70 | 81.70 |
| 4 | 1.07 | 1.20 | 2.27 | 82.27 |
The 3-month figure is 0.80 + 0.90 = 1.70, so full carry is 80.00 + 1.70 = 81.70.
Compare that with the contango curve in the previous section, where the 3-month contract is 81.10. The market premium is 81.10 - 80.00 = 1.10, which is 1.10 / 1.70 = 65% of full carry. A contango that is below full carry is the normal case when storage is not scarce. When the premium reaches full carry, storage is close to its limit, because anyone with space can lock in the gap by buying spot and selling the future.
The model is a ceiling, not a forecast. For gold, which is cheap to store, the curve follows mostly the interest rate, as what is spot vs futures gold works through.
What Creates Backwardation: Convenience Yield?
Backwardation appears when holding the physical commodity is worth more than the cost of carrying it. The benefit is called convenience yield: the value to a user of having the commodity on hand, for example a refinery that would otherwise stop if supply were interrupted.
Convenience yield is not observed directly. It is the number that closes the gap between the model and the market:
Convenience yield = full-carry price - observed futures price
Using the full-carry 3-month price of 81.70 above:
- Observed 3-month price in a backwardated market: 79.50
- Convenience yield: 81.70 - 79.50 = 2.20
- As a share of spot: 2.20 / 80.00 = 2.75% over three months
The market is paying 2.20 more for a barrel today than the carry model says a barrel in three months should cost, which is the same as saying holders of physical oil are earning a benefit larger than their holding cost.
Backwardation is therefore a statement about the present: prompt supply is scarce relative to demand, or the market expects it to be. Contango is a statement that prompt supply is comfortable and the cost of holding is the main factor. Neither is a view on direction.
For commodities that are costly to store or cannot be stored, such as electricity, the carry model works poorly. The gas market also has strong seasonal patterns that the model does not capture; why natural gas prices spike in winter covers that side, and spread trading strategy covers how traders use curve shape on purpose.
Why Does the Curve Matter to a Futures-Linked CFD Trader?
The curve matters because a long position that is rolled forward in contango re-enters at a higher price each time, and a position rolled in backwardation re-enters at a lower one. The effect is called roll yield: negative for a long in contango, positive for a long in backwardation, with the sign reversed for a short.
Using the first curve, a long position that rolls from the 1-month contract at 80.00 to the 2-month contract at 80.60 re-enters 0.60 higher. If the curve and spot stay unchanged, that happens again each month, and convergence pulls each new front contract back toward spot. That is why a contango curve costs a long futures holder money even when the spot price is flat.
The same logic applies to volatility futures, where contango is commonly observed. How that plays out for a CFD on the volatility index is covered in how to trade the VIX, and the basis between spot and futures for physical commodities is in basis trading.
What reaches a CFD account depends on the provider's quote method: a visible step on contract change, a silent adjustment, or carry expressed through overnight financing. The oil roll article linked above lists all three. This glossary entry stays with the curve itself.
Which Vanto Symbols Have a Futures Curve Behind Them?
The symbols whose underlying markets have a futures curve are the energies, the metals and the volatility index. The table below lists them from the Vanto feed snapshot, 10 October 2026.
| Symbol | Feed description | Class | Contract size | Swap sign (long / short) | Triple swap day |
|---|---|---|---|---|---|
| USOil | US Crude Oil Spot | energies | 100 | positive / negative | Friday |
| UKOIL | UK Crude Spot | energies | 100 | positive / negative | Friday |
| NGas | Natural gas spot | energies | 100 | negative / positive | Friday |
| XAUUSD | Spot Gold vs US Dollar | metals | 100 | negative / positive | Wednesday |
| XAGUSD | Spot Silver vs US Dollar | metals | 5000 | negative / negative | Wednesday |
| VIX | Volatility Index | indices | 1 | negative / negative | Friday |
Source: Vanto feed snapshot, 10 October 2026. Swap sign is shown as a sign pattern only, because swap values are set by the provider and can change.
Three points follow from the table.
No symbol carries a futures-month suffix. The snapshot has 78 symbols, and none is named for a delivery month. The curve is therefore not a list of tradable contract months on this feed. What is a CFD explains why a CFD tracks a reference price without a delivery date.
Swap sign is not curve shape. A positive or negative sign on one side does not tell you whether the underlying curve is in contango or backwardation. Swap is a financing policy, and it can differ by symbol for reasons other than the curve. Reading the sign as a curve signal would be a mistake. What is swap in trading explains what the number is made of.
Contract size sets the dollar value of a curve gap. The 1.50 premium in the oil example is worth USD 150 on one 100-barrel lot, and a 1-lot XAGUSD position, at 5000 ounces, is worth USD 5,000 for each 1.00 move in the quote. What is contract size in trading gives the formula.
Leverage by class is 1:100 for energies and 1:500 for metals, and 1:100 for indices. Leverage amplifies losses as well as gains, and margin call is at 100% with stop-out at 50% on every account.
When Do Contango and Backwardation Rules Break?
The simple rules fail in four cases, and each one has caught traders who treated the curve shape as a signal.
- The curve flips. A market can move from contango to backwardation within weeks, as storage fills or empties. A cost that applied last quarter may not apply now.
- Spot moves more than the curve. The roll cost in contango is small next to a large spot move. A long position in contango can still gain if spot rises by more than the roll cost.
- The front of the curve differs from the back. A curve can be backwardated in the first months and in contango later. Quoting one word for the whole curve hides this, so state which months you mean.
- Contango is not "bearish" and backwardation is not "bullish". The shape describes carry and prompt supply, not where the price goes next. Reading it as a direction forecast mixes two separate things.
Frequently Asked Questions
Is contango good or bad?
Contango is neither good nor bad; it is a description of the curve, and its effect depends on the position. A long futures position held through contango tends to lose roll yield, while a short position gains from the same convergence. A CFD holder meets the effect through the provider's quote method and swap.
Which is more common, contango or backwardation?
It depends on the market and the period, and no single answer applies to all commodities. Storable goods with ample supply tend to sit in contango, and tight prompt supply produces backwardation. Check the current curve for the market you trade, because last year's shape says little about this month.
Does backwardation mean the price will rise?
No. Backwardation means prompt delivery is priced above later delivery, which describes present scarcity or convenience yield. The spot price can fall while the curve stays backwardated, and rise while it stays in contango.
What is the difference between contango and basis?
Contango compares two futures months with each other, while basis compares the spot price with one futures price. Both reflect the cost of carry, and both converge toward zero at expiry for a deliverable contract. Basis trading covers the spot-to-futures side.
Does a CFD on oil or gold have contango?
The underlying futures market has a curve, and the CFD provider's quote method determines how that reaches you. The Vanto feed lists USOil, UKOIL, NGas, XAUUSD and XAGUSD without a delivery month, so read the symbol specification in MT5 for the quote method and the swap terms.
How do I find the shape of a curve?
Compare the prices of at least two delivery months of the same commodity on an exchange or data provider. If the later month is higher the curve is in contango, and if it is lower the curve is in backwardation. Divide the gap by the nearer price to get a percentage you can compare across markets.
Calculate the Numbers Before You Trade
To see what a curve gap is worth on your position, multiply the price gap by the contract size and the lot size, then compare it with the margin the position uses. The trading calculator returns margin, pip value and position size for each symbol from its specification.
Risk warning. Trading securities, futures, options, and contracts for differences are complex financial instruments that require knowledge and understanding. Prices can fluctuate significantly and securities may become valueless. Investors may incur losses exceeding the potential for profits. Trading on margin can result in losses greater than the amount initially deposited. Past performance is not necessarily a guide to future performance. The information in this article is for educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Consider whether CFD trading is appropriate for your circumstances and seek independent advice if necessary.