medium · FRM Part 1 Financial Markets and Products

Holding the commodity's spot price path fixed, which effect most directly erodes the total return of this rolling long position relative to the change in spot price?

1. Negative roll yield: as each expiring contract converges up toward the higher next-month price, the trader systematically sells the cheaper expiring leg and buys the pricier deferred leg across rolls, even with spot unchanged.
2. Convenience yield accrues to the long futures holder and is paid away to the short counterparty each period, steadily reducing the long's mark-to-market gains over the full holding period regardless of the roll schedule.
3. Daily marking-to-market correlation between futures prices and the financing rate raises the futures price above the forward price, which actually lowers the trader's entry cost on each successive monthly roll.
4. Negative carry from physical storage costs that the long futures holder must pay directly to the warehouse operator during the life of each contract while the position awaits its next roll.

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