Backwardation - Definition

Refers to the market condition in which the price of a forward or Futures Contract is trading below the expected spot price at contract Maturity.

For example, immediate Delivery of silver may cost $300 an ounce, whereas delivery in two months only costs $200 an ounce, with that $200 to be paid at time of delivery. It is a peculiar situation, because no rational person would buy silver for $300 an ounce today, when they could enter into a contract to take delivery for $200 in two months time, except when they do not believe their Counterparty will be able to deliver at the $200 forward price, or if they needed to use the silver immediately.



Terms near "Backwardation"

Bad debt
Bad debt reserve
Bailment
Balance of payments
Balance of Trade
Balance Sheet
BAM
Bank Credit
Bank Line
Bank of England
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