Cantango and backwardation -- hedgers/speculators

CFA Level II
#1

Can someone tell me under Cantango and backwardation… are the hedges or speculators long or short and why? I cna’t keep it straight!

#2

For me I always think of speculators. If they are long, backwardation, if they are short, contango.

#3

contango - the speculators want to sell at Forward price >expected future price because their profit is sell high (fwd price) buy low expected spot price backwardation - speculators will buy low Fwd price

#4

thanks i’ll get this right on the exam now!

#5

When speculators are long, they need a discount to accept price risk.

#6

So then would Hedgers be: If Long - contango If short - backwardation

#7

thepinkman Wrote: ------------------------------------------------------- > So then would Hedgers be: > > If Long - contango > If short - backwardation yes I believe so

#8

so hedger and speculator do the opposite here? why that?

#9

pretty much all the times the market of derivatives is created by speculators and people that want to protect themselves/hedge risk