The two approaches need for commodities trading know contango and backwardation.

Contango is normal for most raw materials. This is because most carry the raw materials costs are. Such costs include warehousing fees and finance charges waived interest on money tied up, less income from leasing the goods, if possible.

The contango should be no more than the cost of carry or otherwise arbitrageurs to take advantage of the situation. Talk to the spot price plus storage is lower than the futures contract price arbitrageurs can buy the physical and save it at the same time sell the futures contract. On the delivery date of the contract, the arbitrageurs, the physical, to provide the exchange for a risk-free profit. If there is a shortage of short-term, breaks down the price comparison, and contango can be reduced or perhaps even reversing into a state called backwardation . In this state, close prices become higher than before (ie, future) prices, because consumers prefer the product sooner rather than later (see convenience yield), and since there are few owners that an arbitrage profit by Sales on site and can buy back the future.

A market that is steep backwardation ie -, A, where there is a very steep premium for materials available – often has a perception of the current shortage in the underlying commodity. For the same reason, a market that is deeply in contango view a performance of a current surplus in the goods. So why is contango and backwardation important concepts in the commodity trading?

1) It tells the dealer if it lack or tightness in the physical markets. If the market is pretty tight, is to spread backwardation or contango spread is narrowing are getting bigger. The dealers must be careful when they decide to just one product that is deficient, because shortage situation get the product usually resulting in the price.

2) Commodities futures contracts have expiration dates. Traders need in the event that the contract expires, white, and a rollover is necessary to do the dealers earn or lose contango spread through.
For a contango product
say, gold, short term lower rate than in the past month price, so if the trader a long position in gold, what is happening, he will lose contango spread when his current contract rollover to the next month.

On the other hand, if the dealer is a short position on gold, due to end, he won contango spread when its current actual rollover to the next month. Gold contract is an example of a contango Product: Short-term is lower than in the past month price. And copper contract is an example of a backwardation Product:
Current price is higher than in the past month price. See here for their contract tables: http://allaboutoil. blogspot. com/2008/05/must-know-concept-for-commodities. html

It is difficult to understand? If this is so, then you can just trade commodities contracts do not expire. Forex Yard is one of the few platforms that gold, silver and oil contracts that do not offer on the expiration date. To open the account, click here and click on the logo inside. Select Default Account for the account opening. For trading ideas on raw materials, go to a rel <= "nofollow" onclick = "javascript: article_exit_link pageTracker. _trackPageview ('/ Outgoing /');" href = "http://www. Commoditiestradingpro. com / "> www. CommoditiesTradingPro. com .