Convenience Yield

AAA

DEFINITION of 'Convenience Yield'

The benefit or premium associated with holding an underlying product or physical good, rather than the contract or derivative product.

INVESTOPEDIA EXPLAINS 'Convenience Yield'

Sometimes, due to irregular market movements such as an inverted market, the holding of an underlying good or security may become more profitable than owning the contract or derivative instrument, due to its relative scarcity versus high demand.

An example would be purchasing physical bales of wheat rather than future contracts. Should their be a sudden drought and the demand for wheat increases, the difference between the first purchase price of the wheat versus the price after the shock would be the convenience yield.

RELATED TERMS
  1. Backwardation

    A theory developed in respect to the price of a futures contract ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Contango

    A situation where the futures price of a commodity is above the ...
  4. Inverted Market

    In the context of options and futures, this is when the current ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
Related Articles
  1. Alternative Assets For Average Investors
    Options & Futures

    Alternative Assets For Average Investors

  2. Massive Hedge Fund Failures
    Options & Futures

    Massive Hedge Fund Failures

  3. Hedge Funds Hunt For Upside, Regardless ...
    Options & Futures

    Hedge Funds Hunt For Upside, Regardless ...

  4. Understanding Option Pricing
    Options & Futures

    Understanding Option Pricing

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center