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A Complete Guide to the Futures mArket
series means that past prices in a continuous series will not match the actual historical prices that 
prevailed at the time. However, the essential point is that the continuous series is the only linked 
futures series that will exactly reflect price swings and hence equity fluctuations in an actual trading 
account. Consequently, it is the only linked series that can be used to generate accurate simulations in 
computer testing of trading systems.
The preceding point is absolutely critical! Mathematics is not a matter of opinion. There is one 
right answer and there are many wrong answers. The simple fact is that if a continuous futures price 
series is defined so that rollovers occur on days consistent with rollovers in actual trading, results 
implied by using this series will precisely match results in actual trading (assuming, of course, accu­
rate commission and slippage cost estimates). In other words, the continuous series will exactly paral­
lel the fluctuations of a constantly held (i.e., rolled over) long position. All other types of linked series 
will not match actual market price movements.
T o illustrate this statement, we compare the implications of various price series using the sideways 
gold market example cited earlier in this chapter (i.e., gold hovering near $1,200 and a forward/
nearby contract premium equal to 1 percent per two
­month spread). A trader buying a one­year for­
ward futures contract would therefore pay approximately $1,273.82 (1.016 × $1,200 = $1,273.82). 
The spot price would reflect a sideways pattern near $1,200. As previously seen, a 60­day constant­
forward price would reflect a sideways pattern near $1,212 (1.01 × $1,200). A nearest futures 
price series would exhibit a general sideways pattern, characterized by extended minor downtrends 
(reflecting the gradual evaporation of the carrying charge time premium as each nearby contract 
approached expiration), interspersed with upward gaps at rollovers between expiring and subsequent 
futures contracts.
Thus the spot, constant
­forward, and nearest futures price series would all suggest that a long 
position would have resulted in a break­even trade for the year. In reality, however, the buyer of the 
futures contract pays $1,273.82 for a contract that eventually expires at $1,200. Thus, from a trading 
or real
­world viewpoint, the market actually witnesses a downtrend. The continuous futures price is 
the only price series that reflects the market decline—and real dollar loss—a trader would actually 
have experienced.
I have often seen comments or articles by industry “experts” arguing for the use of constant
­
forward (perpetual) series instead of continuous series in order to avoid distortions. This argument 
has it exactly backwards. Whether these proponents of constant
­forward series adopt their stance 
because of naïveté or self ­interest (i.e., they are vendors of constant ­forward­type data), they are 
simply wrong. This is not a matter of opinion. If you have any doubts, try matching up fluctuations 
in an actual trading account with those that would be implied by constant
­forward­type price series. 
you will soon be a believer.
Are there any drawbacks to the continuous futures time series? of course. It may be the best 
solution to the linked series problem, but it is not a perfect answer. A perfect alternative simply 
does not exist. 
one potential drawback, which is a consequence of the fact that continuous futures 
accurately reflect only price swings, not price levels, is that continuous futures cannot be used for any 
type of percentage calculations. This situation, however, can be easily remedied. If a system requires 
the calculation of a percentage change figure, use continuous futures to calculate the nominal price