In the Context of Futures Contracts, What Is Meant by “Contango” and “Backwardation”?
Contango is a market condition where the price of a futures contract is higher than the expected spot price at contract maturity. This typically results in an upward-sloping futures curve.
Backwardation is the opposite, where the futures price is lower than the current spot price, often resulting in a downward-sloping curve. Contango usually reflects storage costs and cost of carry, while backwardation can indicate a high immediate demand for the underlying commodity or asset.
These terms describe the relationship between spot and futures prices.
Glossar
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.
Backwardation
Contango ⎊ ⎊ Backwardation, within cryptocurrency derivatives markets, signifies a futures contract price trading below the expected spot price, a deviation from the more common contango structure.