Define the Term “Contango” in the Futures Market.
Contango is a market condition where the futures price of an asset is higher than the expected spot price at maturity, or the near-term futures price is lower than the long-term futures price. This typically occurs when the cost of carrying the underlying asset, such as storage and insurance, is positive.
It is the opposite of backwardation.
Glossar
Spot Price
Valuation ⎊ The spot price in cryptocurrency, options, and derivatives represents the current market-clearing price for immediate delivery of the underlying asset, functioning as a fundamental benchmark for pricing more complex instruments.
Futures Price
Valuation ⎊ Futures price, within cryptocurrency and derivative markets, represents a binding agreement to transact an asset at a predetermined future date and price, functioning as a standardized forward contract facilitated by an exchange.
Market Condition
Volatility ⎊ Market condition is defined by several key factors, with volatility being a primary determinant of risk and opportunity.
Contango
Condition ⎊ Contango describes a derivatives market state where the futures price for an asset is trading at a premium relative to the current spot price, suggesting that the market anticipates higher prices in the future or that the cost of funding and storage is positive.