Perpetual Contract(R) Data

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Perpetual Contract® data is a proprietary CSI concept that many traders find very helpful as both an analytic and trading aid. It is intended as an indicator of market movement, not as an explicit price indicator. This time series can be calculated in two different ways:

The original formula uses Time Weighting and represents a weighted average of the two contracts of the same commodity that lie adjacent to a given period-forward point in time, avoiding the volatile expiring market period and the quiet illiquid period of a contract's history.

The alternative Perpetual Contract series uses Open Interest Weighting to blend all contracts, with emphasis on those with the greatest open interest.

Either way, Perpetual Contract Data can continuously focus on the center of market volume and liquidity, and effectively take the market's pulse over an indefinite period. Unlike nearest future contracts, this computed contract has no abrupt jumps or drops in price. Use this concept to study a market's characteristics over time without concern for contract expiration or the following of complex contract roll-forward rules.

The user settings for Perpetual Contract Data are shown here:

You'll need to select the appropriate response for each of the following:

Date

The two entries for the Rollforward Date in Perpetual Contract data determine when the contract that is closest to expiration (of the pair) is dropped from the formula and is replaced with the next farther-out contract. The "Date" only applies when Trading Day Weighting is used.

Day From Start of Month: This entry determines the specific date when your Perpetual Contract series will drop the lead contract and add a more distant contract for calculating the time-weighted moving average.

In the box to the right of this prompt, enter the roll-forward date (1 to 31) within the rollover month. Use 31 to roll on the last trading day. The month in which this date falls is determined by the next prompt.

Months Prior: In the box to the right of this prompt, enter the number of months prior to the contract's expiration month when rolling should occur. Enter 0 for rolling within the expiration month, 1 for one month prior, etc. Use 0 (along with 31, above) for the last trading day.

Since Perpetual Contract Data is intended to avoid the volatile period at the end of a contract's life, it is common to use an early rollover date such as the first day of the expiration date (1 for Day and 0 for Months Prior) or, even better, to roll on the tenth day of the month prior to the delivery month (10 for Day and 1 for Months Prior).

Weighting

Time Weighting: The original formula for Perpetual Contract Data uses a time-weighted average of the prices of two contracts of the same commodity. When Time Weighting is selected, the standard procedure is used. The Rollforward "Date" and "Months Forward to View Market" selected on the Perpetual Contract Selection screen will apply.

Open Interest Weighting: An alternate strategy for calculating a Perpetual Contract data series is to use an open-interest weighted average of all active trading months. To use the alternate formula which weights prices of all active contracts based on open interest, click the down arrow at the right of the text box, then click Open Interest Weighting. When this choice is taken, neither the roll date nor the months ahead to view market options will be taken into account.

Months Forward to View Market

When creating time-weighted Perpetual Contract data, a time-weighted average is produced using the prices of the contracts that expire before and after the ever-changing date that lies a fixed number of months in the future. This prompt determines how many months ahead that ever-changing date will be.

Your entry should be greater than or equal to the maximum gap (in months) between successive delivery months for this market. Three months ahead is the usual distance for measuring most commodities, financials and indices, because most have contract expirations at least as often as every two or three months. A two-month forward view of the market may be appropriate for commodities that expire every month or two such as the energy products, live cattle or hogs and perhaps some precious metals.

If a commodity has a large gap between successive delivery months, such as Pork Bellies (Aug. to Feb.), the months ahead to view the market should be increased to reflect that gap. Using a value that is less than the maximum gap between successive contracts will result in some portions of the series representing nearest-future data, as opposed to Perpetual Contract data.

This entry will be disregarded if Open Interest Weighting is selected.

Be sure to select your detrend preferences, date range, post-processing and export options (for portfolio) before clicking OK to complete the selection.

Perpetual Contract is a Registered Service Mark of Commodity Systems, Inc.