What Is “Backwardation” in the Context of Crypto Futures?
Backwardation is a market condition where the price of a futures contract is lower than the spot price of the underlying asset. This inversion of the normal contango state suggests that traders expect the spot price to fall in the future.
It is a common sign of bearish sentiment and heavy selling pressure, often seen during market crashes.
Glossar
Profitability
Yield ⎊ Within cryptocurrency derivatives and options trading, yield represents the aggregate return generated from a portfolio or strategy, encompassing premiums, gains from underlying asset movements, and any associated financing costs.
Bearish Sentiment
Sentiment ⎊ A prevailing market mood, particularly within cryptocurrency derivatives, reflects investor expectations regarding future price movements.
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.
Custody Risk
Exposure ⎊ Custody risk within cryptocurrency, options, and derivatives centers on the potential for loss stemming from the failure of a custodian to safeguard assets.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Backwardation
Momentum ⎊ Within cryptocurrency derivatives, backwardation signifies a market condition where futures contracts trade below the spot price of the underlying asset, reflecting anticipations of price declines or increased supply in the future.