What Is ‘Contango’ and ‘Backwardation’ and How Do They Relate to Traditional Futures Vs. Perpetuals?

Contango is when the futures price is higher than the expected spot price. Backwardation is when the futures price is lower than the expected spot price.

In traditional futures, these reflect market expectations and the cost of carry. In perpetuals, the funding rate actively works to minimize contango or backwardation by pushing the contract price towards the spot price.