What Is the Risk of “Contango” When Rolling a Position?

Contango is the state where the longer-dated futures contract is more expensive than the expiring one. When rolling a long position in contango, the trader must sell the expiring contract at a lower price and buy the new contract at a higher price, resulting in a loss (a negative roll yield).

This loss, if persistent, can erode the overall profitability of the long-term strategy.