# Roll Yield

> Roll yield is the return from futures converging toward spot as they near expiry. Learn how contango and backwardation drive it and how to estimate it.

Source: https://learn.tradelabsai.com/futures/roll-yield/  
Track: Futures · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Roll Yield", https://learn.tradelabsai.com/futures/roll-yield/

Roll yield is the part of a futures position's return that comes from the shape of the futures curve rather than from changes in the spot price. As a futures contract approaches expiry, its price converges towards spot. If the contract started above spot (contango), that convergence pulls it down; if it started below spot (backwardation), convergence pulls it up. Long term futures investors, especially in commodities, find that roll yield can matter as much as the spot price over time.

## Breaking down futures returns

For a fully collateralised long futures position, total return can be split into three parts:

| Component | Source |
|---|---|
| Spot return | Change in the spot price |
| Roll yield | Futures converging toward spot, set by the curve shape |
| Collateral return | Interest earned on the cash backing the position |

```
futures excess return ≈ spot return + roll yield
```

## Positive and negative roll yield

| Curve | For a long position | For a short position |
|---|---|---|
| Contango (futures above spot) | Negative roll yield | Positive roll yield |
| Backwardation (futures below spot) | Positive roll yield | Negative roll yield |

See [Contango](https://learn.tradelabsai.com/futures/contango/) and [Backwardation](https://learn.tradelabsai.com/futures/backwardation/).

## Estimating roll yield

A simple annualised estimate uses the first two contracts:

```
annualised roll yield ≈ (F1 - F2) / F2 × (12 / months between contracts)
```

**Example: Two markets, same spot change**
Over a year, two commodities have unchanged spot prices.

- **Commodity A** is in contango: front month $50, next month $50.80 (one month apart). Annualised roll yield ≈ (50 minus 50.80) / 50.80 × 12 ≈ minus 18.9%. A long rolling investor loses about 19% despite a flat spot price.
- **Commodity B** is in backwardation: front month $50, next month $49.40. Annualised roll yield ≈ (50 minus 49.40) / 49.40 × 12 ≈ +14.6%.

These are estimates assuming the curve shape stays the same all year; in reality curves change constantly.

## Roll yield in practice

- **Commodity index returns** have historically depended heavily on roll yield. Research by Gary Gorton and Geert Rouwenhorst (2006) and later work found that commodity futures returns varied with curve shape, and that commodities in backwardation tended to outperform those in contango.
- **Energy:** oil has swung between steep contango (2015, 2020) and steep backwardation (2022), causing large differences between oil fund returns and spot oil changes.
- **VIX futures:** persistent contango produces strongly negative roll yield for long positions. See [The VIX](https://learn.tradelabsai.com/volatility/the-vix/).
- **Equity index futures:** roll yield reflects interest rates minus dividends, a financing cost rather than a commodity effect.

## Carry strategies

Because roll yield is visible in advance from the curve, systematic strategies can tilt towards markets with positive roll yield (backwardation) and away from those with negative roll yield (contango). This is the commodity version of the carry factor, also applied to currencies (interest differentials) and bonds (yield and roll down). See [Carry Factor](https://learn.tradelabsai.com/research/carry-factor/) and [Carry Trading](https://learn.tradelabsai.com/strategies/carry-trading/).

## Roll yield is not free

Roll yield is the expected return if spot stays where it is. But curve shape often reflects real supply and demand. A market in backwardation may be tight because of a disruption that later resolves, sending spot down. The roll yield estimate is not a promise of returns; it describes one component of them.

## Reducing negative roll yield

- **Hold later months** when the front of the curve is steeply in contango.
- **Use optimised roll strategies** that choose the contract month with the least contango.
- **Avoid long holding** of products with persistent negative roll, such as long VIX funds.
- **Trade calendar spreads** to express views on the curve itself. See [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/).

## Frequently asked questions

### What is roll yield?

The return from a futures contract's price converging toward the spot price as expiry approaches, determined by whether the curve is in contango or backwardation.

### Is roll yield positive or negative?

It is positive for long positions in backwardation and negative for long positions in contango.

### Why do commodity ETFs underperform spot prices?

Often because they roll futures in contango, which creates negative roll yield that drags returns below the spot price change.

Next, learn how hedgers think about the gap between spot and futures in [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/).

## Continue learning

- Next lesson: [Basis and Basis Trading](https://learn.tradelabsai.com/futures/basis-and-basis-trading/)
- Previous lesson: [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/)
- 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: [Contango](https://learn.tradelabsai.com/futures/contango/): Contango is when later futures trade above nearer ones or spot. Learn why it happens, how it erodes long commodity and VIX funds, and how traders use it.
- Related: [Backwardation](https://learn.tradelabsai.com/futures/backwardation/): Backwardation is when later futures trade below nearer ones or spot. Learn the causes, convenience yield, positive roll yield and what it signals about supply.
- Related: [Carry Factor](https://learn.tradelabsai.com/research/carry-factor/): The carry factor buys higher yielding assets and sells lower yielding ones across currencies, bonds, commodities and stocks. Learn how carry is measured.
- Related: [Carry Trading](https://learn.tradelabsai.com/strategies/carry-trading/): Carry trading holds higher yielding assets funded by lower yielding ones to earn the difference. Learn how carry works across markets and why carry trades crash.