Welcome to The Structure of Futures Markets: the unit that explains why the same commodity carries different prices across its delivery months, and what the pattern of those prices is telling you. Unit 2 built the futures contract itself. This unit steps back and looks at a whole ladder of contracts (the same commodity, different delivery months) and reads the shape they form.
Exam Weight: Part 1 spans ~71% of the exam across Chapters 1-7 combined; the National Futures Association (NFA) does not publish per-unit weights.
What You'll Learn
In this unit, you'll cover:
- Normal Markets: The default structure for a storable commodity, where each further-out delivery month costs more than the one before it, why the carrying charges of storage, insurance, and financing drive that upward slope, and why the spread between months has a hard ceiling called full carry
- Inverted Markets: The reverse structure, where nearby months cost more than distant ones, why a near-term shortage or urgent demand for immediate delivery flips the slope downward, and why carrying charges cannot explain it
Why This Matters
The entire unit turns on one thing: direction. Which months are priced higher tells you which structure you are in, and each structure has its own cause.
- In a normal market the distant months are higher, because whoever holds the physical commodity for later delivery keeps paying to carry it
- In an inverted market the nearby months are higher, because someone needs the commodity now and will pay a premium to get it before anyone else
Master the direction and its cause for each structure, and every question in this unit becomes a matter of reasoning rather than memorizing. The two structures are opposites, so learning one reinforces the other.
Let's start with the default case, the normal market, and build up from what makes each delivery month cost what it does.