Backwardation describes a market in which the price of a near term contract is higher than the price for later deliveries. It is usually an indication of tight physical supplies. The opposite is referred to as contango, which produces a negative roll yield. Over the long run, the low inventory commodities tend to outperform high inventory commodities. Although this is usually the case, retail investors show a knack for buying into futures indices at times of steep contango. This is in contrary to what they should be doing.
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