Wall Street just had its worst week since April, and it all started with a single number.
In July, the US economy added only 73,000 jobs, falling well short of the 100,000 expected. The shock didn’t stop there – previous job growth estimates for May and June were sharply revised down by a combined 258,000.
Almost immediately, markets reacted. The S&P 500 fell by 2.4% for the week, while the Nasdaq dropped 2.2%, as investors reassessed expectations for the US economy and upcoming interest rate decisions.
For many traders, economic data like the monthly jobs report might seem like background noise. But in reality, these numbers play a powerful role in shaping market sentiment, driving price moves, and even guiding central bank decisions.
What is the jobs report – and why should traders care?
The US jobs report, officially known as the Nonfarm Payrolls (NFP) report, is published monthly by the US Bureau of Labour Statistics.
It provides a detailed snapshot of how many jobs were created or lost across the economy (excluding farm work, government jobs, and a few other categories). Alongside job creation, it includes data on the unemployment rate, labour force participation, and wage growth.
Why is this report so closely watched by traders? Because employment levels directly reflect the health of the economy. More jobs typically mean more consumer spending, business growth, and stronger corporate earnings – all of which support rising stock prices.
On the other hand, weak job numbers may signal slowing economic activity, putting pressure on earnings and increasing the risk of recession.
The jobs report also influences central bank policy. If the labour market is weakening, the Federal Reserve may feel more pressure to cut interest rates to support growth.
July’s shocking numbers: What happened?
July’s report took the markets by surprise. Only 73,000 new jobs were added – far fewer than the 100,000 forecast by economists. Even more concerning were the revisions to earlier months: May and June’s numbers were reduced by a combined 258,000 jobs.
This downward adjustment indicates the slowdown didn’t just begin in July – it’s part of a broader trend that’s been underestimated.
The unemployment rate also ticked up slightly to 4.2%, and wage growth remained subdued. These signs suggest that the labour market – previously one of the US economy’s strongest points – may now be cooling more rapidly than expected.
As a result, traders swiftly recalibrated their expectations for monetary policy. Before the report, the odds of a Federal Reserve rate cut in September were around 40%. After the release, that probability surged to over 90%.
How job reports affect the financial markets
The jobs report is one of the most market-moving economic releases in the financial calendar. Here’s how different markets typically respond:
Stock markets (such as the S&P 500 or Nasdaq) often rally on strong jobs data, as it signals economic growth. But they can fall sharply if the data suggests weakness or raises fears of stagflation. July’s weak report led to the worst weekly stock market performance since April.
Currency markets, particularly the USD, react quickly to job figures. Strong job growth tends to strengthen the dollar, while weak numbers, like in July, cause the dollar to drop as rate cut expectations rise.
Bond markets see immediate shifts. Weak jobs data typically pushes bond prices up and yields down, as investors bet on lower interest rates.
Commodity markets, such as gold and oil, also respond. Gold often rises on economic uncertainty and expectations of lower interest rates, while oil may fall if traders anticipate reduced demand from a slowing economy.
The key point? A single number in a jobs report can trigger widespread volatility across all major markets.
Why unemployment isn’t just a statistic
The unemployment rate is more than just a number – it reflects real-world economic momentum. When unemployment rises, it can lead to reduced consumer spending, slower growth, and weaker investor confidence.
For traders, rising unemployment often signals riskier conditions for businesses and can impact sectors differently.
For example, consumer discretionary stocks (such as retail and travel) tend to be more sensitive to unemployment data than defensive sectors like utilities or healthcare.
Similarly, currencies of countries with rising joblessness can come under pressure, as weaker economies attract less investment.
Think of unemployment as an early warning system. It often rises before other indicators of economic trouble show up in earnings reports or GDP figures. That’s why traders monitor it so closely.
What traders should watch next
With July’s report sending shockwaves through the markets, what should traders be paying attention to in the coming weeks?
Upcoming Fed meetings: Will the central bank confirm a September rate cut?
Consumer spending figures: If people stop spending, the slowdown may deepen.
Corporate earnings: Especially from job-sensitive sectors like retail and hospitality.
Other economic indicators: Watch for confirmation in inflation, GDP, and housing data.
Market sentiment: Reactions from institutional investors often shape price trends.
These elements can help traders understand where markets might move next – and how to prepare for volatility or opportunity.
Conclusion
The July jobs report was a wake-up call for traders. It reminded the markets that even one economic indicator can shake expectations, shift central bank policy bets, and trigger widespread volatility.
For traders, it’s important not to get lost in the noise. Focus on understanding why the market moves, not just how. Keep an eye on key indicators like jobs data, but also maintain a broader view of macroeconomic trends and central bank signals.
Most importantly, use this as an opportunity to prepare. Volatility can bring risk, but also opportunity – if you are ready for it.
Want to take advantage of market moves with confidence? Open a live account with VT Markets today and gain access to real-time data, fast execution, and a powerful trading platform to help you trade smarter.
Automated trading uses computer programs to execute trades based on predefined rules, helping traders act faster, avoid emotional decisions, and stay active in the markets around the clock. Whether you’re a beginner exploring your first trading system or an experienced trader looking to scale your strategy, understanding how automated trading operates is essential. In this guide, we explain what automated trading is, its key benefits and risks, and how you can get started with a strategy that fits your trading goals.
What Is Automated Trading?
Automated trading, also known as algorithmic or auto trading, allows traders to use computer programs to execute buy and sell orders based on predefined rules. These programs enable efficient, consistent trading without manual input, following a set of coded instructions known as trading algorithms. These computer programs follow a defined set of instructions—called trading algorithms—to make decisions without the need for constant human intervention.
Today, automated trading systems are widely used by both retail and institutional traders. According to industry estimates, over 70% of daily trading volume in the US stock market is driven by algorithmic systems. This trend reflects how automation is transforming the way markets operate.
How Does Automated Trading Work?
An automated trading system operates based on a set of predefined rules. These rules are usually created using technical indicators, price patterns, or statistical models. Algorithmic trading strategies often use such indicators to identify profitable opportunities, especially through methods like moving averages and trend-following techniques, without relying on complex predictive analysis. Once configured, the system continuously scans the market and automatically places trades when predefined conditions are met.
Here’s how the process typically works:
Define a strategy: e.g. buy when the 50-day moving average crosses above the 200-day moving average.
Convert it into code: either by programming yourself or using tools on platforms like MetaTrader 4 or 5.
Connect to a broker: like VT Markets, which supports automated trading platforms. Reliable data feeds are essential at this stage to ensure accurate market data, symbol mapping, and order execution.
Execute trades: The system will automatically place trades with no manual input required.
Example:
A trader sets up an auto trading system that buys gold whenever RSI falls below 30 and sells when RSI rises above 70. The bot scans the markets 24/5 and executes these trades instantly, even while the trader is asleep.
Advantages of Automated Trading
Automated trading systems offer a wide range of benefits for both beginner and experienced traders. Here are the key advantages:
Speed and efficiency: Automated systems execute orders within milliseconds of meeting criteria, enabling traders to take advantage of even the smallest market movements before prices shift. This high-speed execution also minimizes human error in trade execution, leading to greater accuracy and consistency.
Emotion-free trading: Since trades are based on logic, not emotion, automated systems avoid fear, greed, and hesitation—leading to more consistent and disciplined execution.
24/5 market monitoring: Automated trading platforms run continuously during market hours, allowing you to capture opportunities across global markets—even while you’re asleep or away from your screen.
Backtesting capability: Before risking real money, traders can run their strategies on historical market data to evaluate performance and fine-tune parameters for better results.
Diversification: With automation, it’s possible to run multiple trading strategies across different instruments and markets at the same time, helping spread risk and improve consistency.
Disadvantages of Automated Trading
While automated trading offers many benefits, it also presents specific risks and limitations that traders should understand:
Over-optimization: Some systems are too finely tuned to historical data, performing well in backtests but failing under live market conditions. This is known as curve fitting, and it can lead to disappointing real-world performance.
Technical failures: Automated trading systems depend heavily on technology. Internet outages, software bugs, or power failures can disrupt trade execution, potentially causing financial loss for the investor. Such disruptions can also affect ongoing trading activities, leading to missed opportunities or unintended trades.
Lack of human judgment: Algorithms follow logic, not context. They may misinterpret unpredictable events like geopolitical news or economic shocks that require discretion and real-time human analysis.
Ongoing monitoring required: Despite being automated, these systems still need supervision. Glitches, slippage, or unusual price behavior can cause runaway trades if left unchecked.
How to Start with Automated Trading
Getting started with an automated trading system doesn’t require advanced coding skills, but it does require a structured approach. Follow these seven steps to build a strong foundation:
Step 1: Understand what automated trading is
Before diving in, make sure you fully understand what automated trading involves. Learn how systems operate, the types of strategies available, and how auto trading compares with manual trading. This knowledge helps set realistic expectations.
Step 2: Choose a trading platform
Pick a platform that supports automation and integrates with brokers. Popular options include MetaTrader 4 (MT4), MetaTrader 5 (MT5), and cTrader. Look for platforms that allow the use of Expert Advisors (EAs), offer backtesting features, and provide stable execution.
Step 3: Select or build your trading strategy
You can either develop your own strategy or use a pre-built one. Strategies may be based on technical indicators (e.g. moving average crossovers, RSI thresholds) or more complex logic. Make sure the strategy is rule-based and measurable.
Step 4: Set your rules
Define specific conditions for trade entry, exit, stop-loss, and take-profit levels. Clear parameters are essential for the system to work accurately without emotional or discretionary influence.
Step 5: Test on demo accounts
Run your automated trading system in a simulated environment to assess its performance. Monitor how it behaves in real market conditions, identify issues, and fine-tune parameters without risking real funds.
Step 6: Go live with confidence
Once your system performs well in demo testing, deploy it in a live environment using a trusted broker. Start with small capital and monitor it closely to ensure real-time execution aligns with expectations.
Step 7: Stay informed and updated
Market conditions change, and so should your system. Keep learning, review your system regularly, and stay updated on financial news and platform updates to ensure your strategy remains relevant and effective.
Examples of Popular Automated Trading Strategies
Automated trading systems can execute a wide range of strategies based on predefined logic. Below are some of the most commonly used ones:
1. Trend-Following Strategy
Trend-following strategy is one of the most common automated trading approaches. It attempts to capture gains by identifying assets that are moving in a consistent direction—either upward or downward. Trend-following systems rely on indicators like moving averages, MACD, or ADX to confirm the strength and direction of a trend.
Example: An automated trading system buys an asset when the 50-day moving average crosses above the 200-day moving average (a classic bullish signal), and exits when the reverse occurs. This reduces the chance of emotional decisions and helps the trader stay in the trend longer.
2. Mean Reversion Strategy
Mean reversion strategy is based on the idea that prices tend to revert to their historical average, or mean value, over time. Automated systems monitor price deviations from this mean value (average price) and enter trades when assets appear overbought or oversold.
Example: A bot monitors the stock price in relation to the mean value. It sells when the stock price trades two standard deviations above the mean on a Bollinger Band and buys when it falls two deviations below. The assumption is that price will eventually “snap back” toward the average.
3. Breakout Strategy
Breakout trading focuses on entering the market when price breaks out of a clearly defined support or resistance level. These breakouts often signal the beginning of strong trends, especially when confirmed by volume or volatility indicators.
Example: A system monitors the previous 20-day high. When the price breaks above that level with increased volume, it triggers a buy order, anticipating that momentum will push prices higher.
4. Arbitrage Strategy
Arbitrage strategies involve exploiting price discrepancies between two markets or trading venues. Arbitrage strategies exploit price discrepancies between markets. These short-lived opportunities require fast execution and minimal latency—making them ideal for automation.
Example: If gold is trading at $1,900 per ounce on Exchange A and $1,902 on Exchange B, the bot instantly buys from A and sells on B, locking in a small profit. While this is more common in institutional trading, some retail bots can perform simple arbitrage between brokers or instruments.
5. Scalping Strategy
Scalping aims to make many small profits by entering and exiting trades quickly throughout the day. It requires high-frequency execution, tight spreads, and minimal slippage, which makes it well-suited for automated trading platforms. Scalping shares similarities with high frequency trading, as both involve rapid execution of numerous trades in short timeframes.
Example: A scalper bot is programmed to open and close trades within seconds or minutes, targeting just 1–3 pips of profit per trade. It may execute 50–100 trades per session, relying on speed and consistency rather than large price movements. Some scalping strategies also aim to execute trades near the volume weighted average price (VWAP) to optimize order execution.
Common Mistakes to Avoid When Using Automated Trading
While automated trading systems offer many advantages, they are not foolproof. Many traders make costly mistakes when setting up or managing their systems. Avoiding the following errors can significantly improve your performance and reduce unnecessary risk:
Skipping Testing: Failing to backtest or demo test can lead to unexpected losses in live trading. Test thoroughly to ensure your system works in different market conditions.
Ignoring News Events: Algorithms can’t interpret sudden news or economic events. Without filters, they may enter trades during high-risk periods like interest rate announcements.
Running Bots Unattended: Automated systems still need oversight. Technical issues, server failures, or outdated parameters can cause serious trading errors if left unchecked.
Failing to Adapt to the Market: Markets evolve. A strategy that worked last year may fail today. Regularly review and update your system to stay aligned with current conditions.
Over-Optimizing Your Strategy: Tuning your system too perfectly to past data can lead to curve fitting, where it performs well in backtests but fails in real-time markets.
Neglecting Risk Management: Some traders rely entirely on automation but overlook essential risk management strategies like setting stop-losses or managing position sizing. Even a strong system can wipe out an account without proper controls.
In Summary
Automated trading allows you to execute strategies efficiently, free from emotional bias, and with 24/5 market access. Whether you’re trend-following, scalping, or exploiting price breakouts, automated systems can help streamline your trading process. But success still depends on the right setup, ongoing monitoring, and adapting to changing markets. By understanding how automation works, choosing the right platform, testing your strategy thoroughly, and avoiding common mistakes, you can harness the power of auto trading with more confidence and control.
Practice your strategies with a VT Markets demo account to explore automation in real market conditions—risk-free. Our 24/5 Help Centre is here to support you every step of the way, whether you’re just getting started or optimizing an existing system.
An automated trading system is a software program that follows predefined trading rules to execute buy and sell orders automatically. These systems can execute trades on a variety of assets, including the underlying security in options or derivatives trading.
2. Is automated trading profitable?
It can be, depending on the strategy and market conditions. Like any system, it requires testing and ongoing adjustments.
3. Do I need coding skills to start auto trading?
Not necessarily. Many platforms offer plug-and-play bots or drag-and-drop strategy builders.
4. What platforms support automated trading?
Popular options include MetaTrader 4, MetaTrader 5, NinjaTrader, and cTrader.
5. Is automated trading legal?
Yes. Automated trading is legal in most regions, but always check with your local financial regulations.
6. How much does it cost to use an automated trading system?
Costs vary. Some trading bots are free or included with your platform, while others require a monthly subscription or one-time license. You may also need to pay for a VPS to keep your system running 24/5.
7. Is auto trading suitable for beginners?
It can be. Beginners can start with pre-built strategies and demo accounts. However, it’s important to understand the risks, test thoroughly, and learn how the system works before going live.
8. What are the risks of automated trading?
Risks include technical failures, over-optimization, poor strategy design, and lack of adaptability. No system guarantees profits, so regular monitoring and proper risk management are essential.
9. Can I stop or pause my automated trading system at any time?
Yes. Most platforms allow you to pause, modify, or stop your bot at any time. This gives you full control in case market conditions change or issues arise.
10. What’s the difference between automated trading and copy trading?
Automated trading uses programmed rules to trade on your behalf. Copy trading mirrors the trades of a selected trader in real time. Both are passive, but automated trading is typically more customizable.
Wall Street regained momentum this week, with renewed optimism in the tech sector helping to lift sentiment. A key announcement from Apple sparked broader gains, though investors remain alert to potential headwinds from earnings and macroeconomic shifts.
Wall Street bounces back with tech-driven gains
Wall Street staged a strong recovery on Wednesday, breaking its recent losing streak with a surge led by technology stocks.
The S&P 500 advanced by 0.73% to close at 6,345.06, while the Nasdaq climbed 1.21%, fuelled by an unexpected 5% rally in Apple shares.
The Dow Jones Industrial Average added 81 points, recovering after declines in six of the past seven sessions.
Apple’s sharp rise followed a major announcement from CEO Tim Cook, who revealed plans to invest an additional $100 billion in US manufacturing – raising the company’s total domestic investment commitment to $600 billion over four years.
Apple announced plans to invest an additional $100 billion in US operations, marking its largest single commitment to domestic investment, as CEO Tim Cook joined President Trump in the Oval Office for the announcement https://t.co/pqvbkw3ID3pic.twitter.com/F1edQGW0jd
Speaking from the Oval Office alongside President Trump, Cook declared that Apple was “coming home”, with all units of the iPhone set to feature glass manufactured in Kentucky.
Investors welcomed the news, viewing it as both economically stimulative and politically favourable. The announcement sparked renewed interest across the tech sector, with six of the seven “Magnificent Seven” stocks closing higher. Microsoft was the only outlier, dipping 0.5%.
Technical analysis: S&P 500 eyes key resistance
The S&P 500 has maintained a strong upward trajectory since reaching a low of 4,802.15 in April 2025, gaining over 1,500 points in a steady climb.
The index is currently consolidating just below a major resistance level at 6,439.58, a recent swing high.
Picture: SP500 holds near 6365, but momentum slows as MACD turns bearish on the VT Markets app.
The price remains well supported above the 30-day moving average, which continues to trend upwards.
Shorter-term 5- and 10-day moving averages have begun to converge, signalling potential short-term uncertainty.
Although a minor pullback has occurred from recent highs, today’s session opened with modest gains (+0.27%), indicating that bullish sentiment remains intact.
However, the MACD indicator shows signs of waning momentum. The MACD line has crossed beneath the signal line, and the histogram has turned negative – suggesting a potential short-term consolidation or correction unless bulls can convincingly push above 6,439.
Immediate support is found around the 6,012 level, which previously acted as a breakout zone. A drop below this level could open the door for a deeper pullback toward the 5,800–5,600 range.
Conversely, a confirmed break above 6,439 may pave the way for a move into uncharted territory near the 6,600 mark.
What’s ahead
If current momentum holds and earnings reports continue to impress, the S&P 500 could soon retest the 6,400 resistance level – potentially setting the stage for a new leg higher.
Positive surprises in upcoming corporate results, particularly from heavyweight tech firms, may act as further fuel for the rally.
However, the path forward is not without risk. Any signs of earnings fatigue, cautious forward guidance, or emerging political headwinds – particularly around trade, regulation, or fiscal policy – could prompt a pullback, dragging the index toward the 6,200–6,250 support zone.
Investors should remain attentive to key developments from Apple, as the company’s strategic direction and supply chain shifts continue to influence broader tech sentiment.
In parallel, macroeconomic commentary from central banks and policymakers will play a critical role in shaping risk appetite over the coming weeks.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.
European markets are moving cautiously this week. Investors are reacting to disappointing economic data from the region while waiting for an important inflation report from the United States. With no strong local news to drive the market, confidence is low, and both share prices and currencies are trading in narrow ranges.
Economic data weighs on sentiment
Recent numbers from Europe and the UK suggest that the region’s economy is under pressure. Retail sales in the eurozone rose by just 0.3% in June, slightly below forecasts.
More importantly, Germany’s industrial orders – a key indicator of manufacturing health – fell by 1.0%, even though analysts expected a rise.
In the UK, the construction sector is also slowing down. The latest survey (PMI) showed a drop to 44.3, well below the level that indicates growth.
Although Germany’s construction PMI improved slightly to 46.3, it still suggests ongoing weakness.
These figures raise concerns that the economic slowdown in Europe may last longer than expected. As a result, investors are becoming more cautious with European stocks and currencies.
Stock markets struggle to hold gains
Share markets in Europe tried to push higher at the start of the week, but gains didn’t last. Germany’s DAX index and France’s CAC 40 both ended the session with only small increases.
This shows that traders are unwilling to take strong positions without clearer signals from the economy or central banks.
Germany’s weak data is particularly worrying. In past years, when Germany’s factories slowed down, it often led to poor performance in the wider European market.
Many now fear that history could repeat itself if conditions don’t improve soon.
What this means for the euro and the pound
The euro and British pound have shown small gains against the US dollar this week, but these moves may not last.
If the next US inflation report shows prices rising faster than expected, the dollar could strengthen again – putting pressure on both the euro and the pound.
This is especially true because the European and UK economies don’t currently look strong enough to support their currencies on their own.
Traders who expect more weakness might consider options or positions that benefit if EUR/USD or GBP/USD falls after the US data release.
Volatility may return soon
Right now, markets are quiet. Prices are moving within tight ranges, and overall volatility (price swings) is low. But this calm might not last.
Next week’s US CPI (Consumer Price Index) report is a major event. If inflation is higher or lower than expected, markets could move sharply in either direction. For traders, this can be an opportunity to prepare ahead of time.
One way to do this is by using options strategies such as straddles or strangles, which are designed to profit from big moves – regardless of direction.
These can be useful on instruments like the DAX index or currency pairs such as EUR/USD.
A time to prepare, not to chase
Right now, European markets are in a holding pattern. There’s no strong trend, and economic data is sending mixed signals.
This quiet period is a chance to get ready. The next big move could come after the US inflation numbers are released – and that could set the tone for the rest of the month.
For now, risk management and planning are key. Whether it’s through protective strategies or well-timed entries, being prepared matters more than being early.
Contango and backwardation are terms used in futures trading to describe how contract prices relate to the current market (spot) price. These pricing patterns offer key insights into supply, demand, and market sentiment. Whether you’re trading oil, gold, or commodity ETFs, understanding the difference between contango and backwardation can shape how you manage positions and assess risk. In this article, we’ll explain what these terms mean, what causes them, how they differ, and how traders and investors can apply this knowledge in real-world scenarios.
What Does Contango Mean?
Contango is a market condition where futures prices are higher than the current spot price. Contango refers to a situation in which the price for a commodity to be delivered at a future date is above the price available in the spot market, where immediate delivery occurs. In simple terms, it means you’re paying more for delivery in the future than if you bought the commodity today.
This usually happens when the cost of holding or storing the asset—such as storage costs, insurance costs, and interest rates—is factored into the price. Markets often experience contango when there is no immediate shortage or supply disruption, and future prices reflect normal storage and carry costs.
Example of Contango:
Contango often appears in the crude oil market when supply is abundant and demand is stable or declining. Brent crude oil is a classic example of a commodity that often trades in contango. For instance, if the spot price of oil is $75 per barrel, but a futures contract for delivery in six months (the future date) is priced at $78, the market is in contango. This price difference reflects the storage, insurance, and financing costs associated with holding the physical commodity until delivery. In this scenario, the futures curve is typically an upward-sloping forward curve, where the future price or forward price for a future date is higher than the current spot price, and is compared to the expected spot price at the time of contract expiration.
What Does Backwardation Mean?
Backwardation is the opposite of contango. It occurs when futures prices are lower than the current spot price, creating a market known as a backwardation. In such a market, the futures curve is typically a downward-sloping curve, reflecting market expectations that prices will fall or that there is a supply-demand imbalance. Backwardation can also occur when the futures price is below the expected future spot price, a situation referred to as normal backwardation. This is often explained by Keynesian theory, where the difference between the futures price and the expected future spot price represents a risk premium earned by speculators for taking on price risk. Additionally, convenience yield—the benefit or incentive for holding the physical commodity now rather than later due to anticipated supply disruptions or tight supply conditions—can contribute to backwardation.
Backwardation tends to favor long positions, as futures prices often rise and converge with the spot price before expiry. This creates what’s known as a positive roll yield, which can enhance returns over time.
Example of Backwardation:
Backwardation is common in natural gas markets during periods of high seasonal demand. For example, if the spot price of natural gas rises to $5.00 per MMBtu due to increased heating needs, while a futures contract for delivery a few months later is priced at $4.30, the market is in backwardation. This reflects strong near-term demand, the influence of convenience yield, and expectations of lower prices once the short-term pressure eases. The difference between the futures price and the expected future spot price may also include a risk premium, further contributing to the backwardation structure.
What Causes Contango and Backwardation?
Several factors can influence whether a market is in contango or backwardation:
1. Storage and Insurance Costs
Storage costs and insurance costs are significant factors, especially in commodity futures and commodity futures markets. These costs are incurred to hold the underlying commodity until the delivery date, and they are reflected in the delivery price of the futures or forward contract. As the delivery date approaches, the futures price and spot price tend to converge.
2. Financing Costs and Interest Rates
Financing costs and interest rates are also part of the total cost structure for future delivery of the underlying asset. In both futures markets and forward contracts, these costs are included in the calculation of forward prices and delivery prices, impacting the price differences between spot and futures prices.
3. Expectations of Future Supply and Demand
Investors anticipate changes in future supply and demand, which affect the expected future price and expected spot price of the underlying commodity. These expectations are reflected in the pricing of futures contracts, forward contracts, and forward prices.
4. Contract Structure and Expiration
The structure of futures contracts and forward contracts includes specific expiration dates, expiry dates, and delivery dates. As the contract expires or the futures contract expires, the futures price and spot price converge, and the delivery price becomes equal to the spot price. This convergence is a key feature of both futures and forward contracts.
5. Arbitrage and Price Risk
Price risk and price differences between spot and futures prices create opportunities for market participants to sell futures contracts or engage in arbitrage. In the futures market and commodity futures markets, these activities help align prices and manage risk for both speculators and hedgers.
For example, in extreme market conditions, the current futures price and current price can diverge significantly, reflecting the impact of storage costs, financing costs, and market expectations. In normal market conditions (contango), futures prices are above spot prices, and as the delivery date or expiry date approaches, prices converge.
Contango vs Backwardation: What Are the Key Differences?
The key differences between contango and backwardation lie in how they reflect market expectations and trading conditions. As a futures contract approaches expiration, spot and futures prices tend to move closer together, eventually meeting at the contract’s expiry. The table below highlights the main contrasts between the two pricing structures.
Aspect
Contango
Backwardation
Price Relationship
Futures price > Spot price
Futures price < Spot price
Market Condition
Surplus or stable supply
Tight supply or rising demand
Trader Impact
Negative roll yield
Positive roll yield
Common in
Energy, gold in stable periods
Agriculture, energy in crisis
Risks
Costly rollovers in ETFs
Limited availability or volatility
1. Price Relationship
In a contango market, the futures price is higher than the spot price. This reflects the costs associated with holding or storing the asset until delivery. The delivery price reflects the agreed cost of the commodity upon settlement, aligning futures and spot prices as the contract nears expiry. Traders expect prices to rise gradually toward the futures price as the contract matures. In backwardation, the futures price is lower than the spot price, meaning immediate delivery is more expensive. This often signals strong current demand or limited supply.
2. Market Condition
Contango typically occurs when the market is well-supplied and stable. There is no immediate need for the commodity, so traders price in the cost of carrying the asset into the future. In contrast, backwardation suggests a tight market where supply is constrained or demand is surging. It reflects urgency — buyers are willing to pay more now rather than wait.
3. Trader Impact and Roll Yield
Contango can be costly for traders and investors who roll over futures contracts. As each expiring contract is replaced by a more expensive one, the strategy generates a negative roll yield, reducing overall returns. Backwardation, on the other hand, often produces a positive roll yield. Traders benefit as futures prices tend to rise and converge with the spot price before expiry, effectively boosting returns.
4. Common Markets and Conditions
Contango is often observed in markets with high storage capacity and low short-term demand, such as crude oil or gold during calm economic periods. Backwardation is more common in commodities sensitive to seasonal demand or geopolitical stress, such as natural gas during winter or agricultural products during supply disruptions.
5. Risks and Challenges
In contango, investors in commodity-based ETFs or funds may experience performance drag due to repeated rollovers into higher-priced contracts. This is especially problematic for long-term holders. In backwardation, while roll yield can be positive, the market may be volatile and unpredictable. Prices may reflect panic buying or unexpected supply shocks, which pose risks of their own.
How Traders and Investors Use Contango and Backwardation
Understanding whether a market is in contango or backwardation helps traders and investors make more informed decisions about when to enter or exit a position, and how to manage risk. Analyzing price movements and futures curves allows investors to identify opportunities and risks in contango and backwardation markets.
In a contango environment, futures prices are higher than spot prices, which can erode profits over time through negative roll yield. This is especially important for short-term traders or ETF investors, as rolling into higher-priced contracts repeatedly can reduce performance. As a result, traders in contango markets often limit their holding periods or seek alternative strategies like calendar spreads to manage the cost of rollover.
In backwardation, futures prices are lower than the current spot price. This can work in favor of long-term holders because of the positive roll yield — as contracts move toward expiry, they tend to rise and converge with the spot price, offering a potential return boost. Traders often see backwardation as a sign of near-term scarcity, which can lead to more confident or aggressive long positions.
For investors using commodity ETFs or funds tied to futures (such as oil, gas, or metals), the shape of the futures curve matters significantly. ETFs that roll contracts monthly can suffer in contango, while they tend to perform better in backwardation. Monitoring curve structures regularly helps investors avoid underperformance and align with market conditions more effectively.
Advantages and Disadvantages of Contango
Contango affects traders and investors in different ways depending on their strategy and holding period. Below are the key advantages and disadvantages of operating in a contango market.
Advantages of Contango
1. Predictable and Stable Markets
Contango often reflects normal market conditions where supply is sufficient and prices move steadily over time. This predictability can benefit institutions or hedgers seeking long-term exposure.
2. Useful for Hedging Long-Term Contracts
Producers and commercial users can lock in future prices above current levels, helping them budget and protect against price drops.
3. Reflects Full Cost Structure
The futures price in contango includes storage, insurance, and interest costs, offering a more complete picture of long-term commodity pricing.
Disadvantages of Contango
1. Negative Roll Yield
When traders roll expiring contracts into higher-priced futures, the price difference results in a loss over time — a major concern for futures-based strategies.
2. ETF Underperformance
Commodity ETFs that track futures often roll contracts monthly. In contango, these rollovers happen at higher prices, which can cause the fund to underperform the actual spot price of the asset.
3. Discourages Long-Term Holding
For investors seeking long exposure, contango adds a cost burden that reduces returns over time, making it less attractive for buy-and-hold strategies.
Advantages and Disadvantages of Backwardation
Backwardation can create favorable conditions for certain strategies but may also signal market stress. The following points outline its major benefits and risks.
Advantages of Backwardation
1. Positive Roll Yield
Traders benefit as futures prices rise toward the spot price at expiry, generating a potential return from contract rollovers.
2. Favorable for Long Positions
Investors entering long positions at discounted futures prices can gain an edge as prices rise closer to the spot.
3. Signals Strong Demand or Tight Supply
Backwardation often indicates immediate demand or supply shortages, providing bullish signals for short-term trading opportunities.
Disadvantages of Backwardation
1. Supply Risk and Market Stress
Backwardation may reflect underlying issues like geopolitical risk or inventory shortages, increasing market uncertainty.
2. Higher Market Volatility
Sharp changes in supply and demand can cause price swings, making backwardated markets more volatile and harder to predict.
3. Limited Hedging Flexibility
Lower future prices reduce incentives for producers to hedge, which can lead to more exposure to price fluctuations.
In Summary
Contango and backwardation are key concepts in futures trading that reflect market expectations, cost factors, and the balance of supply and demand. Understanding the differences between them helps traders and investors manage risk, interpret market signals, and make more informed decisions when dealing with futures contracts or commodity-based ETFs.
Explore market opportunities, test your strategies risk-free with a VT Markets demo account, and take advantage of advanced tools to navigate pricing structures like contango and backwardation with confidence.
Contango is when futures prices are higher than the current spot price due to storage or financing costs.
2. What is backwardation in simple terms?
Backwardation is when futures prices are lower than the current spot price due to strong near-term demand or limited supply.
3. Can ETFs be affected by contango?
Yes. Commodity ETFs that roll futures contracts can suffer performance drag in contango markets.
4. How do I know if a market is in backwardation?
Check the futures curve. If short-term contracts are priced higher than long-term ones, it’s backwardation.
5. Why does contango result in negative roll yield?
In a contango market, rolling into a more expensive futures contract means buying high and selling low repeatedly, which erodes returns over time.
6. Can backwardation be sustained long-term?
Backwardation is often short-lived and driven by temporary factors like supply shocks or seasonal demand. It typically shifts back to contango as conditions normalize.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.
Markets opened the week on a positive note as signs of a slowing US economy raised hopes for interest rate cuts. While softer job data might typically worry investors, it’s now fuelling confidence that the Federal Reserve could ease policy – setting the tone for a cautious but optimistic August.
The bullish momentum followed a weaker-than-expected US jobs report, which strengthened investor expectations that the Federal Reserve could begin cutting interest rates as early as next month.
The benchmark index led the broader advance, with the Dow Jones Industrial Average climbing 585 points – a 1.3% gain – while the tech-focused Nasdaq Composite jumped 2%.
Notably, small-cap stocks also joined the rally, pointing to wider market participation beyond just mega-cap tech names.
This broad-based move suggests that investors quickly brushed off the initial concerns sparked by Friday’s disappointing employment data.
Cooling job market reshapes Fed outlook
Investor sentiment shifted significantly following the latest Non-Farm Payrolls report released last Friday.
The US economy added just 73,000 jobs in July – well below expectations – and revisions for May and June showed substantially lower figures than previously reported.
In response, market participants have drastically recalibrated their expectations for monetary policy.
According to futures markets, there is now a 92.1% chance the Federal Reserve will cut interest rates in September – up sharply from the 38% probability priced in before the jobs report was released.
This growing divergence between softening economic indicators and the Fed’s recent guidance has increased the likelihood of policy easing.
Last month’s Consumer Price Index (CPI) report added to this view, revealing that core inflation declined for a third straight month – further fuelling hopes of a rate cut.
Market analysis: August volatility poses fresh test for bulls
As traders enter August – a historically turbulent month for equities – caution may be warranted.
The Dow Jones Industrial Average has delivered its worst monthly performance in August since 1988, and similar seasonal weakness often affects both the S&P 500 and Nasdaq.
Tomorrow wraps July, historically the most bullish month for the S&P 500 over the past 20 years.
But don’t get too comfortable. August and September? Historically choppy. September is the worst month on record.
This backdrop means traders should be prepared for increased market volatility. The continuation of the recent rally will likely depend on incoming data that confirms a cooling US economy, maintaining pressure on the Federal Reserve to act.
Technically, the S&P 500 has shown strong gains since 2 August, as seen on the 15-minute chart, followed by a consolidation phase.
The early-week momentum appears to be fading, suggesting potential for a near-term pullback. Currently, the index sits at a pivotal level, with technical indicators pointing to possible downside risk.
Picture: SP500 hovers near 6340 after a rebound from 6214, but upside momentum appears to be fading, as seen on the VT Markets app.
The first key level to monitor is the lower boundary of the consolidation range at 6336.65. A break below this zone could lead to a test of deeper support.
The 30-period moving average – around 6325 – is another crucial marker. A close below this level would indicate the uptrend is losing steam and a more meaningful correction may be underway.
Looking ahead, traders are focused on the upcoming Initial Jobless Claims report due Thursday, 7 August.
This data release could either reinforce the market’s current optimism for rate cuts or challenge it – depending on whether further signs of labour market weakness emerge.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact info@vtmarkets.com.
5 August 2025, Sydney, Australia – VT Markets‘ 10 week global trading competition, VT Trading Arena, has reached new milestones, reinforcing its status as one of the premier global trading events of the year as traders compete for a share of the remarkable USD1,000,000 prize pool.
The VT Trading Arena has witnessed an overwhelming global response, attracting traders of all experience levels. This impressive turnout reflects the international appeal of the competition, which has united traders from various regions and backgrounds.
Total Trading Volume Surpasses USD2B in the First 4 Weeks: This immense trading activity is a clear reflection of the serious stakes participants are playing for and the competitive spirit that defines the event.
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The VT Trading Arena rewards participants throughout the competition, with the top trader every 5 weeks receiving a grand prize of USD10,000. Second and third place finishers are awarded USD7,000 and USD3,000, respectively, providing further motivation to remain engaged.
For more information on how to participate, eligibility requirements, and the full list of prizes, please visit: https://vttradingarena.com/
*Terms and Conditions apply.
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About VT Markets
VT Markets is a regulated multi-asset broker with a presence in over 160 countries as of today. It has earned numerous international accolades including Best Online Trading and Fastest Growing Broker. In line with its mission to make trading accessible to all, VT Markets offers comprehensive access to over 1,000 financial instruments and clients benefit from a seamless trading experience via its award-winning mobile application.
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