Contango: Difference between revisions

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In futures or options trading, a market in which longer-term contracts have a higher market price than near-term contracts.  
In futures or options trading, a market in which longer-term contracts have a higher market price than near-term contracts.  


The premium attached to longer maturities is a normal condition of markets, reflecting the cost of carry of the commodity (for the contracted future delivery). The further into the future the final maturity date, the higher the price of the contract.  
The premium attached to longer maturities is a normal condition of markets, reflecting the cost of carry of the commodity (for the contracted future delivery).  
 
The further into the future the final maturity date, the higher the price of the contract.  
 


That usual pricing relationship is known as contango.  
That usual pricing relationship is known as contango.  


If - unusually - the opposite is true, and the price of a longer-term contract is lower than the price of a related one with an earlier maturity date, the pricing relationship is known as backwardation.
If - unusually - the opposite is true, and the price of a longer-term contract is lower than the price of a related one with an earlier maturity date, the pricing relationship is known as backwardation.


== See also ==
== See also ==
* [[Backwardation]]
* [[Backwardation]]
* [[Cost of carry]]
* [[Super contango]]
[[Category:Manage_risks]]

Latest revision as of 08:09, 22 August 2017

In futures or options trading, a market in which longer-term contracts have a higher market price than near-term contracts.

The premium attached to longer maturities is a normal condition of markets, reflecting the cost of carry of the commodity (for the contracted future delivery).

The further into the future the final maturity date, the higher the price of the contract.


That usual pricing relationship is known as contango.

If - unusually - the opposite is true, and the price of a longer-term contract is lower than the price of a related one with an earlier maturity date, the pricing relationship is known as backwardation.


See also