Contrast roll return when markets are in contango with roll return when they are in backwardation

Roll return is what a long investor gains or loses in replacing an expiring contract with a later one. In backwardation the new contract is cheaper than the one sold, so the proceeds buy more contracts and roll return is positive; if the curve keeps its shape, the cheaper deferred contract also rises towards spot as it approaches expiry. In contango the new contract costs more, fewer contracts are bought and roll return is negative. With the formula (expiring price − new price) ÷ expiring price, the sign follows automatically. The trap is dismissing roll return as bookkeeping: it reflects the term structure and can dominate long-run returns, especially in energy markets where contango can be steep for long periods.