Negative Roll Yield occurs in crypto futures when a longer-dated futures contract trades at a lower price than a shorter-dated one (backwardation), or when a futures contract’s premium over spot price erodes as expiration nears, leading to a loss when extending a position. It represents a cost incurred when rolling over a futures position.
Mechanism
This phenomenon arises from the structure of the futures curve and the dynamics of contango or backwardation. When a long futures position is rolled, the expiring contract is sold and a new, later-dated contract is purchased. A negative roll yield signifies that the new contract is acquired at a comparatively higher price, creating a drag on returns over time.
Methodology
Effective management requires a thorough understanding of market structure and identifying periods of persistent contango. Traders may seek alternative hedging instruments, adjust position sizing, or exploit arbitrage opportunities between spot and futures markets. Optimizing roll timing and considering implied funding rates in perpetual futures are essential for mitigating this recurring cost.
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