Roll yield

Roll yield is the gain or loss that comes from rolling a futures position forward, closing out a contract that is approaching expiration and opening a new contract with a later expiration date, rather than from any change in the price of the underlying asset itself. It is a return, positive or negative, that exists purely because of the shape of the futures curve, the relationship between prices for contracts expiring at different future dates.

When futures contracts for later months are priced lower than the nearer contract, a condition called backwardation, rolling into the next contract means buying at a lower price, which produces a positive roll yield over time as the position benefits from that price gap closing as expiration approaches. When later contracts are priced higher than the nearer one, a condition called contango, rolling forward means buying at a higher price each time, producing a negative roll yield that steadily drags on returns even if the underlying commodity's spot price does not move at all.

Roll yield matters most to investors in commodity futures and commodity-linked exchange traded funds, since these funds typically cannot hold physical delivery and must continuously roll their futures contracts forward before expiration. A fund tracking oil futures, for example, can lose money over a long stretch even while oil's actual spot price is flat or rising, simply because it is persistently rolling into more expensive contracts in a contango market. Understanding roll yield explains why the returns on a futures-based fund can diverge meaningfully from the return of the underlying commodity itself.