Concept · Diversifiers
What is the term structure of a futures market?
Direct answer The relationship between a futures contract's price and its time to expiration. When later contracts cost more than earlier ones (contango), rolling a position into the next contract loses money even if the spot price sits flat; when later contracts cost less (backwardation), rolling gains.
Every futures-based strategy earns two returns stacked on each other: the change in the spot price, and the roll yield from trading an expiring contract for the next one. The second piece is invisible on a spot-price chart and is often the larger of the two over long samples, in either direction.
A trend-following system trades the curve directly, market by market, rather than taking a view on any one commodity, currency, or rate. The read on trend’s record covers a strategy built entirely on that mechanism.
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