Contango vs Backwardation: What They Mean in Futures Markets
A futures price rarely equals the price of the asset itself. When the future is more expensive, that's contango; when it's cheaper, that's backwardation. Here's where the gap comes from.
What it is
| Contango | Backwardation | |
|---|---|---|
| Futures price | Above spot | Below spot |
| Longer-dated contracts | More expensive than near ones | Cheaper than near ones |
| Common cause | Storage, interest rates, expectations of growth | A shortage of the asset right now |
For example, oil costs $80, and a futures contract six months out costs $83. That's contango: the buyer pays for someone storing the commodity and tying up money. If oil is in short supply right now, people are willing to pay more for it today — the future is cheaper than spot, and that's backwardation.
What you need to know
By the expiration date, the futures price converges with the spot price. Commodity funds that hold futures constantly roll over into the next contract. In contango this costs money, so a fund can lag behind the price of the commodity itself.
The basics are covered in the futures lesson.
Aspiro Trade — signals on 45 assets, each with an entry, take-profit and stop-loss included. First month free.
- Contango — the future is more expensive than spot.
- Backwardation — the future is cheaper than spot.
- By expiration, the prices converge.
Frequently asked questions
Is contango a signal that the price will rise?
No. It reflects storage costs, interest rates and expectations, not a forecast. The price can go anywhere.
Does contango happen in crypto?
Yes, dated bitcoin futures often trade above spot. For perpetual futures, the funding rate evens out the difference.
Why does an oil fund lag behind oil?
One reason is rolling futures in contango: the fund sells the cheaper near contract and buys the more expensive far one.
Free Aspiro Academy
26 lessons on investing and trading from scratch: videos, practice in the Aspiro apps, quizzes and a certificate. Lesson texts are open without sign-up.