Define ‘Contango’ and ‘Backwardation’ in Futures Markets.
Contango is a market condition where the futures price of a commodity is higher than the expected spot price at contract maturity. This typically occurs when storage and financing costs outweigh the convenience yield.
Backwardation is the opposite, where the futures price is lower than the expected spot price. This often happens when there is high demand for the commodity for immediate use.
