What Is the Concept of ‘Contango’ and ‘Backwardation’ in Token Futures Markets?
Contango occurs when the price of a token's futures contract is higher than the current spot price. This is common and reflects the cost of carry (e.g. interest and storage).
Backwardation occurs when the futures price is lower than the spot price. This is less common and often signals that traders expect the spot price to fall or that there is high demand for the immediate token supply.
These conditions influence hedging and trading strategies.
Glossar
Contango
Premium ⎊ Contango in cryptocurrency derivatives represents a futures price exceeding the spot price, reflecting expectations of future price increases or costs associated with storage and carry.
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.
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.
Cost of Carry
Holding ⎊ The cost of carry, within cryptocurrency derivatives and options trading, represents the aggregate expenses incurred while maintaining a position over a specified duration.