What Is a ‘Contango’ Vs. a ‘Backwardation’ Market Structure in Futures Trading?

Contango is a market condition where the futures price of a commodity is higher than the spot price. This typically occurs when there are costs associated with carrying the asset, such as storage and insurance, and suggests the market expects the price to rise over time.

Backwardation is the opposite, where the futures price is lower than the spot price. This often indicates a current shortage or high demand for the asset, suggesting the market expects prices to fall in the future.