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eFinanceManagement.com
https://efinancemanagement.com/derivatives/contango
Contango
1. Meaning
2. Advantages
3. Disadvantages
4. Backwardation
5. Reference
Content
Contango is a condition in the market where the future and father maturity contract prices of a security or commodity
are higher than its current spot price or lower maturity futures price.
Under contango, investors are ready to pay a higher amount in the futures market than in the spot. The extra that traders
are willing to give in the future is usually due to the carrying cost.
Meaning
Advantages of Contango:
• Results in arbitrage strategies
• Suggests the prices would be more in the future
Advantages
Disadvantages of Contango:
• Automatically rolling forward contracts result in a significant disadvantage
• This disadvantage is only for commodity ETFs that use futures contracts.
Disadvantages
It is the opposite of Contango. In this, future prices are less than the spot price. Therefore, in backwardation, the
graphical curve always shows a downward slope or trend.
Backwardation
Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/derivatives/contango

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Contango

  • 2. 1. Meaning 2. Advantages 3. Disadvantages 4. Backwardation 5. Reference Content
  • 3. Contango is a condition in the market where the future and father maturity contract prices of a security or commodity are higher than its current spot price or lower maturity futures price. Under contango, investors are ready to pay a higher amount in the futures market than in the spot. The extra that traders are willing to give in the future is usually due to the carrying cost. Meaning
  • 4. Advantages of Contango: • Results in arbitrage strategies • Suggests the prices would be more in the future Advantages
  • 5. Disadvantages of Contango: • Automatically rolling forward contracts result in a significant disadvantage • This disadvantage is only for commodity ETFs that use futures contracts. Disadvantages
  • 6. It is the opposite of Contango. In this, future prices are less than the spot price. Therefore, in backwardation, the graphical curve always shows a downward slope or trend. Backwardation
  • 7. Reference To know more about it, click on the link given below: https://efinancemanagement.com/derivatives/contango