# Continuous Futures and Back-Adjustment > Continuous futures stitch expiring contracts into one long price series. Learn back adjustment, ratio adjustment, roll rules and why they matter for backtests. Source: https://learn.tradelabsai.com/futures/continuous-futures/ Track: Futures · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Continuous Futures and Back-Adjustment", https://learn.tradelabsai.com/futures/continuous-futures/ Each futures contract lives for a limited time, so there is no single price history for "crude oil futures" or "E-mini S&P 500 futures" the way there is for a stock. To chart long term trends or backtest strategies, traders build continuous futures series by joining contracts together. How the contracts are stitched, when to switch from one to the next and whether to adjust for price gaps at each roll, makes a big difference to what the chart shows and to the results of any backtest. ## The roll gap problem Different contract months trade at different prices. When a series switches from the expiring contract to the next one, there is a jump that reflects the curve, not a real market move. **Example: A raw roll gap** Crude oil's December contract expires at $78.00 while January trades at $78.80. A raw continuous chart that simply switches contracts shows a $0.80 jump on the roll day. A backtest using that chart would record a $800 per contract "gain" that no trader actually earned. Over many rolls in contango, these false jumps add up and distort long term charts. See [Contango](https://learn.tradelabsai.com/futures/contango/). ## Methods | Method | How it works | Pros | Cons | |---|---|---|---| | Unadjusted (nearest contract) | Join contracts without adjustment | Shows actual traded prices | Fake jumps at every roll | | Back adjusted (difference) | Shift all past prices by the roll gap | Daily changes match real P&L; no jumps | Old prices are not real and can even turn negative | | Ratio adjusted | Multiply past prices by the ratio of new to old contract | Percentage changes preserved; no negative prices | Point changes distorted | | Calendar weighted (Panama, proportional blends) | Blend contracts over several days | Smooth roll | More complex; prices are blends | | Constant maturity | Interpolate prices to a fixed time to expiry | Useful for curve and volatility analysis | Not directly tradable | ## Back adjustment in detail Back adjustment keeps the most recent contract's prices as they are and shifts all earlier prices by the cumulative roll gaps. ``` adjusted past price = actual past price + sum of later roll gaps (new minus old) ``` Result: day to day changes in the series match what a trader rolling the position would have earned or lost, so profit and loss in backtests is realistic. The level of prices long ago is artificial: a series that has been back adjusted for decades of contango may show early prices far below what was actually traded, sometimes below zero. ## Ratio adjustment Ratio adjustment multiplies earlier prices by the ratio of the new contract price to the old on each roll date. It preserves percentage returns, which suits indicators based on percentages and long histories. It does not preserve dollar profit and loss per contract. ## Roll rules The roll date affects the series: - **On expiry:** may include illiquid final days. - **Fixed days before expiry:** for example, 5 days before last trading day, or before first notice day for physical contracts. See [First Notice Day and Last Trading Day](https://learn.tradelabsai.com/futures/first-notice-day/). - **Volume or open interest based:** roll when the next contract becomes more active. This matches where traders actually trade. Whatever rule is used for the data should match the rule used in trading. See [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/). ## Why it matters for backtesting - **Unadjusted data** creates fake profits or losses at rolls. - **Back adjusted data** gives correct P&L but wrong price levels, which breaks rules based on absolute price levels or percentage moves from old prices. - **Ratio adjusted data** gives correct percentage changes but wrong point values. - **Indicators** such as moving averages can give different signals on different series. Good practice is to compute signals on an appropriate continuous series and compute P&L from the actual contracts traded. See [Backtesting Methodology](https://learn.tradelabsai.com/research/backtesting-methodology/) and [Historical Data for Backtesting](https://learn.tradelabsai.com/research/historical-data-for-backtesting/). ## Comparison with adjusted stock prices Stocks have a similar issue with dividends and splits, handled by adjusted close prices. The logic is the same: adjust history so that returns are correct, accepting that old price levels no longer match what was printed at the time. See [Splits and Dividends in Price Data](https://learn.tradelabsai.com/programming/adjusted-prices/). ## Common mistakes - **Backtesting on unadjusted continuous data.** - **Using back adjusted levels** for rules like "buy below $50". - **Ignoring the roll rule** in data and in trading. ## Frequently asked questions ### What is a continuous futures contract? A price series created by joining successive futures contracts, used for long term charts and backtests. ### What is back adjustment? A method that shifts all past prices by the price gaps at each roll, so the series has no artificial jumps and daily changes match real profit and loss. ### Why do back adjusted futures prices sometimes go negative? Because cumulative adjustments for many contango roll gaps can push old prices below zero, even though actual traded prices were positive. Next, learn how commodities change hands in [Physical Delivery vs Cash Settlement](https://learn.tradelabsai.com/futures/physical-delivery/). ## Continue learning - Next lesson: [Physical Delivery vs Cash Settlement](https://learn.tradelabsai.com/futures/physical-delivery/) - Previous lesson: [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/) - Related: [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/): Basis is the gap between a spot price and a futures price. Learn how hedgers manage basis risk, how basis trades work and the Treasury basis trade. - Related: [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/): Rolling moves a futures position from an expiring contract to a later one. Learn when to roll, how to use calendar spreads, roll costs and common roll schedules. - Related: [Historical Data for Backtesting](https://learn.tradelabsai.com/research/historical-data-for-backtesting/): Backtests are only as good as their data. Learn data types and sources, quality checks, corporate action adjustments and how to avoid survivorship traps. - Related: [Splits and Dividends in Price Data](https://learn.tradelabsai.com/programming/adjusted-prices/): Adjusted prices remove the jumps caused by splits and dividends so returns are correct. Learn how adjustment factors work, when to use raw prices and common traps. - Related: [Contract Months and Expiration](https://learn.tradelabsai.com/futures/contract-months-and-expiration/): Futures trade in specific contract months with letter codes and fixed expiry rules. Learn month codes, the front month, quarterly cycles and how expiry works. - Related: [Backtesting Methodology](https://learn.tradelabsai.com/research/backtesting-methodology/): A backtest simulates a strategy on historical data. Learn the steps, the key performance metrics, common biases and a checklist for backtests you can trust.