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Deferred month (back month)

Any listed contract month beyond the front month, usually thinner, wider and less responsive to daily news.

Deferred contracts carry the market's view of price further out. They trade with less volume, wider spreads and more resting open-interest from hedgers who are not trying to catch this week's move.

Their prices are not independent: the whole strip is held together by cost-of-carry and arbitrage. A deferred month that drifts too far from the front invites a cash-and-carry-arbitrage that drags it back.

Example: on a day when front-month natural gas jumps 8% on a cold forecast, the contract two winters out may move 0.5%. Weather affects this month's storage, not the long-run cost of producing gas.

Related: front-month, forward-curve, cost-of-carry, contract-month

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Contango and backwardationTwo futures curves against contract expiry: one rising above spot, one falling below it.The same commodity, priced for delivery at different dates.78.0076.0074.0072.0070.00Futures pricespot+1m+2m+3m+4m+5m+6mMonths until the contract expiresspot price74.00CONTANGOlater contracts cost more than spotBACKWARDATIONlater contracts cost less than spot
Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.

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