How Roll Yield Impacts Futures Returns Over Time
Most futures traders don’t realize they’re gaining or losing money from roll yield until months later. Roll yield is the hidden return generated when you roll a position from one contract month to the next. Depending on the curve shape, it can help you quietly make money—or bleed your account dry without a single bad trade.
What Roll Yield Actually Is
Roll yield is the return you get from shifting your position from an expiring futures contract into a later-dated one.
- Positive roll yield → the next contract is cheaper than the current one
- Negative roll yield → the next contract is more expensive
That difference compounds over time, especially in markets that roll every month.
Roll Yield Comes From Term Structure
The futures curve shape determines whether roll yield works for or against you.
| Curve Shape | Next Contract | Roll Yield |
|---|---|---|
| Backwardation | Cheaper | Positive |
| Contango | More expensive | Negative |
If you aren’t familiar with curve behavior, read futures term structure.
Why Roll Yield Matters More Than Price Direction Over Time
You can be right on direction and still lose money if the market’s curve shape is against you.
- Long in contango → you bleed
- Short in contango → you gain
- Long in backwardation → you gain
- Short in backwardation → you bleed
This is why long-term traders care more about structure than intraday noise.
Examples of Positive vs Negative Roll Yield
Positive Roll Yield (Backwardation)
Energy markets like crude oil often trade in backwardation during supply shortages. Each roll lowers your basis, effectively giving you a tailwind.
Negative Roll Yield (Contango)
Natural gas often trades in heavy contango. Every rollover forces longs to buy the more expensive contract. That drag adds up fast.
The Hidden Problem for Retail Traders
Retail traders rarely monitor roll yield because platforms hide it. But the exchange doesn’t hide anything—the curve is right there. If you’re holding a contract for more than a few days, roll yield can be a bigger factor than your actual trade entries.
Combine this with roll mechanics and you’ll understand exactly why your PnL shifts during rollover weeks.
How to Use Roll Yield to Your Advantage
- Trade with the curve, not against it
- Go long in backwardation-heavy markets
- Go short in contango-heavy markets
- Avoid long holds in contracts with persistent negative roll
The Bottom Line
Roll yield is the silent driver of long-term futures returns. Ignore it, and the curve will drain your account slowly. Understand it, and you’ll know exactly which markets give you a tailwind and which ones are guaranteed to fight you.