Definitions for backwardation

This page provides all possible meanings and translations of the word backwardation

Wiktionary

  1. backwardation(Noun)

    fee paid by a seller on settlement day either to the buyer or to a third party who lends stock, when the seller wishes to defer settlement until the next settlement day.

    1991: gold has never gone into backwardation in any currency uE000195444uE001 Reginald H. Howe, The Golden Sextant

  2. backwardation(Noun)

    The situation in a futures market where prices for future delivery are lower than prices for immediate (or nearer) delivery. Generally arising from a near-term shortage of a commodity.

    1991: gold has never gone into backwardation in any currency uE000195444uE001 Reginald H. Howe, The Golden Sextant

Webster Dictionary

  1. Backwardation(noun)

    the seller's postponement of delivery of stock or shares, with the consent of the buyer, upon payment of a premium to the latter; -- also, the premium so paid. See Contango

Freebase

  1. Normal backwardation

    Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a forward or futures contract is trading below the expected spot price at contract maturity. The resulting futures or forward curve would typically be downward sloping, since contracts for further dates would typically trade at even lower prices. In practice, the expected future spot price is unknown, and the term "backwardation" may be used to refer to "positive basis", which occurs when the current spot price exceeds the price of the future. The opposite market condition to normal backwardation is known as contango. Similarly, in practice the term may be used to refer to "negative basis" where the current spot price is below the future price. A backwardation starts when the difference between the forward price and the spot price is less than the cost of carry, or when there can be no delivery arbitrage because the asset is not currently available for purchase. Futures contract price includes compensation for the risk transferred from the asset holder. This makes actual price on expiry to be lower than futures contract price. Backwardation very seldom arises in money commodities like gold or silver. In the early 1980s, there was a one-day backwardation in silver while some metal was physically moved from COMEX to CBOT warehouses. Gold has historically been positive with exception for momentary backwardations since gold futures started trading on the Winnipeg Commodity Exchange in 1972.

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