Business, Legal & Accounting Glossary
Contango refers to a situation that can arise in the futures market.
When the price of a futures contract is lower than its spot price, or when a price that is farther in the future than a nearer future price is higher, then it is said to be ‘in contango’.
If there was a curve showing the value of a contract sloping upwards over time, then it would be contango curved. In theory, this would suggest that prices are expected to rise over the life of the contract(s).
Backwardation refers to the opposite situation when a future price is lower than the spot price.
Traders will say that the forward curve is ‘in contango’.
The term ‘contangoed’ is sometimes used, but it is generally considered to be incorrect.
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This glossary post was last updated: 28th March, 2020 | 0 Views.