For this episode of WDIS Futures 4th Generation, Chris and Pete discuss Energy futures such as crude oil and natural gas. In the commodity space, crude oil is one of the most liquid and active markets.
A calendar spread is the price differential between the front contract and each corresponding future contract. When the Calendar Spread is positive futures are trading in backwardation meaning the back-month prices are lower. On the other hand, when Calendar Spreads are negative futures are trading in contango meaning the back-month prices are higher.
Future calendar spreads trade as a separate product instead of a direct futures contract. We see the active months tend to have liquid, tight bid/ask differentials, allowing Future Calendar Spreads to be entered as one order.