{"id":6546,"date":"2025-01-15T08:39:45","date_gmt":"2025-01-15T08:39:45","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6546"},"modified":"2025-01-15T08:39:46","modified_gmt":"2025-01-15T08:39:46","slug":"hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading","title":{"rendered":"Hedging with Jorge #Episode23: A beginner\u2019s guide to futures trading"},"content":{"rendered":"\n<p>In our previous session, we explored how borrowing works in a contango market. Let&#8217;s quickly recap and then shift our focus to backwardation.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"youtube-embed\" data-video_id=\"GqdbTD_cFF4\"><iframe loading=\"lazy\" title=\"Hedging with Jorge #Episode23: A beginner\u2019s guide to futures trading\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/GqdbTD_cFF4?feature=oembed&#038;enablejsapi=1\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<p><strong>Contango Recap: <\/strong>In a contango scenario, the price of a future contract for a later date is higher than the price for a nearer date. Here&#8217;s how it works:<\/p>\n\n\n\n<p><strong>Borrowing in Contango:<\/strong> You buy the near-term contract (at a lower price) and sell the longer-term contract (at a higher price).<br>Short Position Roll Forward: If you&#8217;re short in April and want to postpone to June, you buy April and sell June. The contango curve allows you to profit because the purchase price is lower than the selling price.<\/p>\n\n\n\n<p>Enter Backwardation: Now, let\u2019s imagine we\u2019re in a backwardation curve. What does that mean?<br>Backwardation occurs when the price of a future contract for a later date is lower than the price for a nearer date.<\/p>\n\n\n\n<p><strong>Key Differences in Backwardation:<\/strong><\/p>\n\n\n\n<p><strong>Higher Near-Term Prices:<\/strong> In our example, the April price is higher than the June price.<br>Borrowing in Backwardation: If you buy at the higher near-term price (April) and sell at the lower future price (June), you incur a loss.<\/p>\n\n\n\n<p><strong>Managing Positions in Backwardation:<\/strong> If you\u2019re starting with a short position in April and need to extend it to June, here\u2019s what happens:<\/p>\n\n\n\n<p><strong>Close April:<\/strong> Buy the short position in April to neutralize it.<br><strong>Open June: <\/strong>Sell the position for June, establishing your new short.<br><strong>Impact of the Curve:<\/strong> In contango, this roll-forward makes money. In backwardation, it results in a loss.<\/p>\n\n\n\n<p><strong>Final Thoughts:<\/strong> The fundamental takeaway is simple:<\/p>\n\n\n\n<p><em>Contango: Borrowing earns you a profit.<br>Backwardation: Borrowing leads to a loss.<\/em><\/p>\n\n\n\n<p>Stay tuned for the next session, where we\u2019ll dive deeper into more advanced concepts in futures trading.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In our previous session, we explored how borrowing works in a contango market. Let&#8217;s quickly recap and then shift our focus to backwardation. Contango Recap: In a contango scenario, the price of a future contract for a later date is higher than the price for a nearer date. Here&#8217;s how it works: Borrowing in Contango: [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-6546","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-open-forum-for-aluminum-community-blog"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>A beginner\u2019s guide to futures trading<\/title>\n<meta name=\"description\" content=\"Explored how borrowing works in a contango market. Let&#039;s quickly recap and then shift our focus to backwardation\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A beginner\u2019s guide to futures trading\" \/>\n<meta property=\"og:description\" content=\"Explored how borrowing works in a contango market. Let&#039;s quickly recap and then shift our focus to backwardation\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\" \/>\n<meta property=\"og:site_name\" content=\"AL Circle Blog\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AlCircle\" \/>\n<meta property=\"article:published_time\" content=\"2025-01-15T08:39:45+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-01-15T08:39:46+00:00\" \/>\n<meta name=\"author\" content=\"Jorge Eduardo Dyszel\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@alcircle\" \/>\n<meta name=\"twitter:site\" content=\"@alcircle\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Jorge Eduardo Dyszel\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\"},\"author\":{\"name\":\"Jorge Eduardo Dyszel\",\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/#\\\/schema\\\/person\\\/64371a8562aa8589375f4f9a8c08a9f6\"},\"headline\":\"Hedging with Jorge #Episode23: A beginner\u2019s guide to futures trading\",\"datePublished\":\"2025-01-15T08:39:45+00:00\",\"dateModified\":\"2025-01-15T08:39:46+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\"},\"wordCount\":315,\"commentCount\":1,\"publisher\":{\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/#organization\"},\"articleSection\":[\"AL Circle\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\",\"url\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/hedging-with-jorge-episode23-a-beginners-guide-to-futures-trading\",\"name\":\"A beginner\u2019s guide to futures trading\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.alcircle.com\\\/blog\\\/#website\"},\"datePublished\":\"2025-01-15T08:39:45+00:00\",\"dateModified\":\"2025-01-15T08:39:46+00:00\",\"description\":\"Explored how borrowing works in a contango market. 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