Roll Yield Explained for Futures Traders
Roll yield is the profit or loss you get from rolling a futures position from one contract month into the next. Most traders ignore it, but it can make or break long-term returns. Roll yield comes from the shape of the futures curve — contango or backwardation — and it directly affects anyone holding positions across expiration.
Why Roll Yield Exists
Futures don’t all trade at the same price. Each contract month has its own supply/demand dynamics, storage cost assumptions, and interest rate adjustments. The difference between these prices creates roll yield when you roll your position forward.
The Two Market Structures That Create Roll Yield
1. Contango (Most Common)
Contango means future months are priced higher than the front month.
- Front month: cheaper
- Next month: more expensive
This creates negative roll yield.
When you roll:
- you sell low (front month)
- you buy high (next month)
This is a drag on long positions. ETFs like USO used to get wrecked by contango because they were constantly buying more expensive crude.
2. Backwardation
Backwardation means future months are priced lower than the front month.
- Front month: more expensive
- Next month: cheaper
This creates positive roll yield.
When you roll:
- you sell high
- you buy low
This is a built-in tailwind for long positions.
Roll Yield in Plain English
| Curve Shape | Long Position | Short Position |
|---|---|---|
| Contango | Negative roll yield | Positive roll yield |
| Backwardation | Positive roll yield | Negative roll yield |
If the curve slopes upward, longs pay a “tax” when rolling. If the curve slopes downward, longs get a “bonus.”
Why Roll Yield Matters
Roll yield matters most for:
- long-term futures traders
- funds holding commodity exposure
- ETF traders
- anyone trying to track spot price
You can be right about direction but still lose money if negative roll yield outweighs your gains — this happens constantly in crude, natural gas, and VIX futures.
How GC Traders Should Think About Roll Yield
Gold futures (GC) typically have a very flat curve. Roll yield is usually small, but during high inflation or chaotic macro conditions the curve can shift and create meaningful roll impact.
If GC goes into backwardation (rare but possible), rolling long exposure becomes cheaper and can improve long-term returns.
How to Check Roll Yield Fast
1. Look at the futures curve
If the next contract is higher → contango. If the next contract is lower → backwardation.
2. Compare front-month vs. next-month spread
Positive spread → contango. Negative spread → backwardation.
3. Use calendar spread prices
Calendar spreads price roll yield directly. For example: GCZ5–GCG6 tells you the cost/benefit of rolling from December to February.
Final Takeaway
Roll yield is the hidden profit or loss created by the futures curve when rolling positions forward. It comes from contango and backwardation, and it affects every long-term futures trader whether they care about it or not. Ignore it and you’ll wonder why your trades don’t match spot price. Understand it and you can turn the futures curve into an advantage instead of a leak.