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backwardation (BAK-wuhr-DAY-shuhn) noun

A premium paid by the seller to the buyer for deferring delivery of stock or some other product. Opposite of contango.

[From backward, from Middle English bakwarde.]

"Another major reason for backwardation or lower volumes in derivatives is that for selling the underlying trader needs to have holding of shares and, therefore, this kind of arbitrage is only possible by a few." Abhishek Parekh; The Future(s) is Here; Business India; Feb 3, 2002.

"The LME's (London Metal Exchange) suspicions were aroused by the fact that none of the economic conditions justified a backwardation in the aluminium price. There was a glut of aluminium in the aftermath of the Asia meltdown and prices for all months other than January displayed the more usual premium of forward-over-spot prices, known as contango." Dan Atkinson; Finance: LMC Squeeze Inquiry Clears Players; The Guardian (London, UK); Jul 29, 1999.

This week's theme: words from the world of money and finance.


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