Roll Yield

Futures contracts have expiration dates — they do not last forever. When a contract nears expiry, investors who want to maintain their position must sell the expiring contract and buy a later-dated one. If the later contract is cheaper (as in backwardation), the investor buys back in at a lower price and captures a positive roll yield. If the later contract is more expensive (as in contango), they pay more for the replacement, creating a negative roll yield — a quiet but real cost. This is explained further in our guide to contango and backwardation.

A simple hypothetical: suppose a trader holds a crude oil futures contract expiring in one month, priced at $80 per barrel. The next month's contract trades at $82. To maintain the position, the trader sells at $80 and buys at $82, immediately locking in a $2-per-barrel cost before the spot price moves at all. Over many rolling cycles in a persistently contango market, these costs accumulate and can meaningfully erode total returns.

Roll yield is invisible to anyone looking only at spot prices, which is why it trips up many readers of commodity market data. A commodity-tracking fund can underperform the raw spot price significantly if the futures curve works against it. The term "roll" comes from the mechanical act of rolling a position forward in time — similar to renewing a lease before it expires. Understanding roll yield is essential for interpreting commodity units and contracts and the real-world performance of futures-based products.