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A Complete Guide to the Futures mArket
So, for example, the weightings of the March and June quotes that would be used to derive a 
100­day forward quote on March 2 would be as follows:
Weighting for March quot e
Weighting for 
 = −
− =1031 00
103 12
3
91
JJune quote  = −
− =100 12
103 12
88
91
As we move forward in time, the nearer contract is weighted less and less, but the weighting for 
the subsequent contract increases proportionately. When the number of days remaining until the 
expiration of the forward contract equals the constant ­forward time (100 days in this example), the 
quote for the constant ­forward series would simply be equal to the quote for the forward contract 
(June). Subsequent price quotes would then be based on a weighted average of the June and Septem­
ber prices. In this manner, one continuous price series could be derived.
The constant
­forward price series eliminates the problem of huge price gaps at rollover points and 
is certainly a significant improvement over a nearest futures price series. However, this type of series 
still has major drawbacks. T o begin, it must be stressed that one cannot literally trade a constant
­
forward series, since the series does not correspond to any real contract. An even more serious 
deficiency of the constant
­forward series is that it fails to reflect the effect of the evaporation of time 
that exists in actual futures contracts. This deficiency can lead to major distortions—particularly in 
carrying
­charge markets.
T o illustrate this point, consider a hypothetical situation in which spot gold prices remain stable at 
approximately $1,200/ounce for a one­year period, while forward futures maintain a constant pre­
mium of 1 percent per two­month spread. given these assumptions, futures would experience a steady 
downtrend, declining $73.82/ounce1 ($7,382 per contract) over the one­year period (the equivalent  
of the cumulative carrying­charge premiums). Note, however, the constant­forward series would com­
pletely fail to reflect this bear trend because it would register an approximate constant price. For 
example, a two
­month constant­forward series would remain stable at approximately $1,212/ounce 
(1.01 × $1,200 = $1,212). Thus, the price pattern of a constant ­forward series can easily deviate 
substantially from the pattern exhibited by the actual traded contracts—a highly undesirable feature.
 ■ Continuous (Spread-Adjusted) Price Series
The spread­adjusted futures series, commonly known as continuous futures, is constructed to elimi­
nate the distortions caused by the price gaps between consecutive futures contracts at their transi­
tion points. In effect, the continuous futures price will precisely reflect the fluctuations of a futures 
position that is continuously rolled over to the subsequent contract N days before the last trading 
day, where N is a parameter that needs to be defined. If constructing their own continuous futures 
data series, traders should select a value of N that corresponds to their actual trading practices.  
1 This is true since, given the assumptions, the one­year forward futures price would be approximately $1,273.82 
(1.016 × $1,200 = $1,273.82) and would decline to the spot price ($1,200) by expiration.