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.