What Is “Contango” and “Backwardation” in Futures Markets?

Contango is a market condition where the futures price is higher than the expected spot price at expiration, or higher than the current spot price. This is the typical scenario.

Backwardation is the opposite, where the futures price is lower than the expected spot price. In perpetual futures, a high positive funding rate corresponds to a state of contango, while a high negative funding rate suggests backwardation.