Roll Yield


DEFINITION of 'Roll Yield'

The amount of return generated in a backwardated futures market that is achieved by rolling a short-term contract into a longer-term contract and profiting from the convergence toward a higher spot price. Profiting from roll yield is a common goal for many strategies used by traders in the futures market.


Backwardation occurs when a futures contract will trade at a higher price as it approaches expiration compared to when the contract is farther away from expiration. Rolling into less expensive futures contracts allows the trader to consistently profit from the rise in a futures' price as it nears expiration.

The biggest risk to this strategy is that the market will shift to contango (opposite as backwardation). This type of changing market has led to major losses by various hedge funds in the past and is the reason why it should only be attempted by experienced traders.

  1. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  2. Contango

    A situation where the futures price of a commodity is above the ...
  3. Backwardation

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

    1. A basic good used in commerce that is interchangeable with ...
  5. Inverted Market

    In the context of options and futures, this is when the current ...
  6. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
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