Backwardation bullish or bearish | Finance & Capital Markets | Khan Academy



Thinking about why backwardation in commodities markets is bullish. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/forward-futures-contracts/v/futures-curves-ii?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/forward-futures-contracts/v/severe-contango-generally-bearish?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: In many commodities markets, it is very helpful for buyers or sellers to lock-in future prices. This is what both forwards and futures allow for. This tutorial explains how they work and what the difference is between the two. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy

Comments

  1. Gold was in backwardation during the financial crisis and other crisis times because there was counter party risk in the system, and people were worried about firms blowing up and not being able to make whole on their contracts. Somthing like s&p futures should always be in backwardation because dividends are factored in to the price, otherwise you could sell the futures contract and buy the s&p and basically profit on dividends risk free.
  2. Lol
  3. why keep using the word bunch all the time in want of a better word?. Oxford educated MIT Prof Strang hardly uses this word.
  4. @2leet2cheet partially true. almost a moot point though. because the idea is you want to keep your commodity. however, assuming you have a threshold price, etc. then that obviously complicates things and is really outside this realm and this concept. Because along with it being worth less, it could be worth more. and in that case you would be out a huge profit if you just sold your commodity. again, really, outside the realm of this concept
  5. Ron Paul 2012 End the Fed
  6. @kamiakin5 Your right, as long as you hold the commodity then it doesn't matter. However, with this assumption your saying you wouldn't sell your commodity if prices moved lower.
  7. @MustNotRead Yes, such a shame...
  8. @ry7ky It's a shame he doesn't teach you how to spell.
  9. Thanks again sir, you tech me new things every time I click on one of your videos.
  10. @MustNotRead i say bullshit or bearshit I was thinking he was going to do a funny video.
  11. @deshadower It says bullish, not bullshit mate;)
  12. This explains the people who bought the Wii for 500 dollars (or more) when it was in high demand. Yes, people want stuff NOW and it's irrational. Also, Khan Academy is the greatest thing since youtube was invented!
  13. @2leet2cheet i don't think you understand the concept. if you own a kilo of a commodity and sell it at a price x and buy futures at a price x-y. then you have made a profit of y. even if it is worth less, you have still come out on top. where as if you didn't take advantage of this, you would still have your kilo and not made any profits. but this risk free profits stems from owning the commodity already.
  14. Kahn ... you should have made the examples about corn or fx futures. Now you've unleashed unbridled pontification about gold prices!
  15. Lol this explains why I can't sell my iphone value keeps dropping. :P
  16. @TheSilverbullet99 > ain't worth the paper it ain't printed on ;_;
  17. i saw "Bullshit or Bearish"
  18. This is a bullish scenario if you are assuming that the current demand will be preeminent.(supply constant) However, there is nothing holding demand constant, and it MAY just be a short term spike, meaning this scenario may not be as bullish as it may seem. I would also like to mention when you said "risk free profits"..If you were to sell your commodity today, and buy futures for delivery tomorrow there is nothing saying it would not be worth LESS tomorrow.
  19. Silver has been in backwardation for at least a month, now.
  20. I have seen evidence which suggests a good deal of the excess demand for gold is coming from Asian countries which often seek to save in a manner which would be considered irrational to westerners - note in China the deposit interest rate is actually held below inflation by the government (negative real interest rates, and yet still the population invests large amounts in deposits. In part due to cultural reasons - but also due to the greater effects of impoverishment in many of these countries.


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Duration: 3m 26s

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