Talk:Contango

One has to be careful with the link between contango and cost-of-carry. A clear example where these cannot be used as equal is in the electricity market. Electricity is impossible to store (or too expensive), hence one cannot say that contango is equal to cost of carry!

AC

Someone suggested "contango" as an expression to be used for the cost involved in a rollover for FX futures. Were they off??? If they weren't then there should be a link to rollovers too.

I would add that in a future's market where speculation is getting TOO important, contango situation would arise only due to price correction, when private investments funds sales their positions.

Merger with Backwardation discussion

Do not merge: Just because they're related that is no reason they can't each have their own article (should we merge Luke Skywalker and Darth Vader just because they're related?). For one thing, each is a topic long enough for its own article. As long as you have a prominent link to Backwardation and an explanation that it is the inverse of Contango - and vice versa - I see no need to merge the articles. ElectricRay 16:16, 1 October 2007 (UTC)[reply]

Exactly. Not only that: the double listing increases exposure for the topic. ~Jas planetjas-com —Preceding unsigned comment added by Planetjas-com (talk • contribs) 16:20, 5 October 2007 (UTC)[reply]

I agree —Preceding unsigned comment added by 81.100.178.169 (talk) 23:39, 17 January 2008 (UTC)[reply]

I agree, mixing the two will amke things less clear not more. —Preceding unsigned comment added by 206.223.235.88 (talk) 22:36, 25 February 2008 (UTC)[reply]

Merge-em

Merge them into one article and contrast them carefully to link them to the concept of the yield curve. That is really the point. Alanbrowne (talk) 02:02, 28 February 2008 (UTC)[reply]

The defenition given in Wikipedia does not seem to agree exactly with the defenition given here:

http://www.investopedia.com/articles/07/contango_backwardation.asp

The Wikipedia defenition seems to be what investopedia calls the normal and inverted curve, which is the curve of futures AT A GIVEN SNAPSHOT in TIME. But Investopedia indicates that contango and backwadation are actually the price VS time of a given futres date. These are not exactly the same thing. I'm not experet and I don't know which is correct, but the disagreement should be resolved by correction is needed. Mark —Preceding unsigned comment added by 136.182.158.137 (talk) 15:53, 20 May 2008 (UTC)[reply]

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Above anon comment is relevant. The definition of contango in Wikipedia as of 22th of May 2008 13:06 (GMT+2) is in confusion with the academic definition of contango for futures commodity markets. Contango refers to falling prices of contracts of certain maturity over their lifetime. It can only be assessed as time goes by. What the futures curve is is a snapshot in time for prices of various contracts at different maturities.

Imagine it like this. Take a snapshot of futures contracts prices as a function of their maturity (btw, not the same as time). Now let 1 day pass. Take another snapshot. Repeat for several days. Now animate these graphs into an animation and see what happens to each data point throughout the animation as the maturity comes closer? Do they fall in price? Now you have contango. Do their rise in price? No you have normal backwardation. The snapshot futures curves themselves are either inverted or normal. They are never contango or normal backwardation themselves. Contango/Normal backwardation is what happens to those curves in relation to the expected spot price as time goes by.

While it is often true that a certain type of futures curve results in a contango, they are not the same (cf. a beginning state vs the resulting process). They are apples and oranges. Also, this relation is not a given.

Also, it is important to notice that this academic definition given above may not be what is the common professional use of the word. In this respect the Wikipedia definition may be more 'correct'. That is, people in everyday speech use the term incorrectly in regards to it's accurate academic definition.

However, at the very least it would be necessary to point out this fact: there are two definitions and they refer not only to to different categories of knowledge objects (state vs process), but also that these definitions end up with reverse interpretations of how the prices actually move (up or down).

On a related note, somehow I'm not too surprised that this kind of conceptual jibberdash happens in economics, the dismal science :)

References: Understanding Futures Markets, Kolb, Blackwell, 1997, p.95 http://books.google.com/books?id=h-4t9699lXgC&pg=PA94&lpg=PA94&dq=%22expected+future+spot+price%22&source=web&ots=3Pa3UCCHWM&sig=F1hFekMpDdCAFc6cdz-tCbvZLks&hl=en#PPA94,M1

"Conversely, if hedgers are net long, then the futures prices would lie above the expected future spot price, and the price of the futures contract would fall over its life. This pattern of falling prices is known as a contango. Figure 3.10 depicts these price patterns."

Financial Lexicon, Banks, Palgrave MacMillan, 2005, p. 76

"CONTANGO A market state where FUTURES prices are higher than expected SPOT prices and decline as contract maturity approaches."

Difficult to pick a user name (talk) 10:48, 22 May 2008 (UTC)[reply]