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How does front month contracts work?

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(edited)

When the oil market is in Contango and the next month's contract is priced say $3 higher than the current month's contract with 10 days left before the current month's contract will expire. Will that $3 difference usually reduce the closer we get to the expiration date? Or is it more common that this price difference remain until the actual expiration causing "current contract CFDs" to gap?

Edited by jpl

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I can't answer your question directly, but if contango is a serious concern you might look into some of the actively-managed ETFs that aren't locked into fixed front-month contracts.

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(edited)

6 hours ago, Bob_W said:

I can't answer your question directly, but if contango is a serious concern you might look into some of the actively-managed ETFs that aren't locked into fixed front-month contracts.

Could you give me some examples of ETFs that are locked into fixed front month contracts? I currently trade the HOU on the TSX. Would that be affected by front month contracts?

Edited by MikiMak

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58 minutes ago, MikiMak said:

Could you give me some examples of ETFs that are locked into fixed front month contracts? I currently trade the HOU on the TSX. Would that be affected by front month contracts?

USO is an example of an ETF that uses front-month contract rollovers.

DBO is an example of an active-managed ETF.  The managers can roll contracts into any month within the next 13 months.

USL is an ETF that rolls over contracts into all of the next 12 months.

Sorry, I can't help with ETFs on the TSX exchange.

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11 minutes ago, Bob_W said:

USO is an example of an ETF that uses front-month contract rollovers.

DBO is an example of an active-managed ETF.  The managers can roll contracts into any month within the next 13 months.

USL is an ETF that rolls over contracts into all of the next 12 months.

Sorry, I can't help with ETFs on the TSX exchange.

No problem thanks for the insight Bob appreciate it. These are the ETFs i am currently trading with. 

https://www.horizonsetfs.com/ETF/HOU

https://www.horizonsetfs.com/ETF/HOD

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