Explain the Concept of ‘Contango’ and ‘Backwardation’ in Futures Pricing

Contango is a market condition where the futures price is higher than the expected future spot price or the current spot price. This typically occurs because of the cost of carry.

Backwardation is the opposite, where the futures price is lower than the expected future spot price or the current spot price. This often indicates a shortage of the underlying asset or high immediate demand.