Tag Archives: pre-rolling

Stacy Summary: Another lesson in rigged markets, this time with commodity ETFs, contango and pre-rolling. Dumb money, of course, usually hopes it is the other money that is dumber.  But the house always wins.

Contango isn’t the only reason commodity ETFs make lousy buy-and-hold investments. Professional futures traders exploit the ETFs’ monthly rolls to make easy profits at the little guy’s expense. Unlike ETF managers, the professionals don’t trade at set times. They can buy the next month ahead of the big programmed rolls to drive up the price, or sell before the ETF, pushing down the price investors get paid for expiring futures. The strategy is called pre-rolling.

“I make a living off the dumb money,” says Emil van Essen, founder of an eponymous commodity trading company in Chicago. Van Essen developed software that predicts and profits from pre-rolling. “These index funds get eaten alive by people like me,” he says.