Should You Back Adjust Your Contracts?

Back-Adjusted vs Standard Charts – Is the Choice Really That Clear?

In modern futures platforms, traders are presented with a variety of ways to display historical charts:

• Back-adjusted by volume

• Back-adjusted by date

• Standard (non-adjusted)

At first glance, this might feel like a technical detail—but it matters more than many realize.

Why This Matters

Equity Futures contracts expire quarterly and trade at fair value upon expiry. At that point, the contract has fully realized:

• Time value

• Carrying costs

• Opportunity cost of dividends

When expiry occurs, traders rolling their positions to the front-month contract are forced into a new contract that includes these costs. The result is a spread or price adjustment that shows up as a roll gap on charts.

To normalize these gaps, many platforms offer back-adjusting—shifting historical prices so that the chart appears as one smooth continuous series. But while this looks cleaner, it introduces its own issues.

Back-Adjusted Contracts

• Purpose: To create a seamless historical price series by aligning past contracts with the current front-month.

• Method: Historical prices are mathematically adjusted at each rollover point to eliminate gaps.

Advantages

• Provides a continuous, smooth price series.

• Very useful for long-term trend analysis and statistical studies, where gaps would otherwise distort the picture.

Disadvantages

• Alters historical price levels, meaning charts no longer reflect the true market conditions at the time.

• Risk of misinterpretation—especially if a trader is analyzing contract-specific behavior or trying to backtest signals on unadjusted data.

Non-Adjusted Contracts

• Purpose: To preserve each contract exactly as it traded.

• Method: No adjustments are made. Each contract’s historical range stands on its own.

Advantages

• Reflects the true historical price action and sentiment of each contract.

• More accurate for studying specific contract expirations.

Disadvantages

• Creates disjointed and gapped series at rollovers.

• Less useful for long-term continuous studies because gaps can dominate the structure.

Examples

• Standard Chart: Visible roll gaps highlight each contract’s true expiration behavior.

• Back-Adjusted Chart: Smooth continuity, but at the expense of historical accuracy.

Which is Better for Traders?

For short-term day traders, the choice might not appear consequential. You’re often trading intraday structure and don’t hold positions across contract rollovers.

However, when looking at daily charts, back-adjusting can meaningfully change what you see. For example, many have noted that on back-adjusted daily charts, the market has not yet returned to old all-time highs—a discrepancy entirely caused by adjustments.

The Takeaway

Even though the effect on short-term trading may be small, accuracy in prior structure matters. If you decide to make the switch, be consistent:

• Don’t mix methodologies.

• Avoid comparing levels from adjusted vs. non-adjusted charts side by side.

• Choose one system and stick with it to prevent misleading analysis.

Consistency is key.