In trading, understanding the concept of borrowing and its connection to contango can open doors to significant profit opportunities. Let’s break it down.

What is Borrowing?

Borrowing involves buying a commodity or asset for a near-term date and selling it for a further date. For instance, if you’re short in April and want to move your position forward, you buy April and sell June. This action is termed “borrowing.”

Enter Contango: In a contango market, prices for future dates are higher than for nearer dates. For example, if April is priced at $2,500 and June at $2,530, the $30 difference becomes your gain. Borrowing in contango allows you to buy low (near-term) and sell high (future), making it a lucrative strategy.

Key Takeaways:

Borrowing = Buying near, selling further.
Contango = Future prices > Near-term prices.
Borrowing in contango = Profits from price differences.

Whether you’re dealing with February to March or April to June, borrowing lets you move your short positions forward while capitalising on market dynamics.

Stay tuned for our next deep dive into borrowing strategies, because understanding these nuances can help you maximise returns!