Contango
Contango is a market condition where futures contracts trade at a higher price than the current spot price.
✦ Key Insight
Contango can reveal the cost of carrying an asset, demand for leveraged exposure, interest-rate effects, and derivatives-market positioning. It is common in many futures markets and is not automatically bullish.
✕ Common Misconceptions
Assuming contango guarantees higher future spot prices
Ignoring financing costs
Confusing contango with a bullish trend
Comparing contracts without considering expiry
Ignoring counterparty and exchange risk
Detailed Explanation
How It Works
Suppose ETH trades at $3,000 today, while a three-month futures contract trades at $3,150.
The futures market is in contango.
As the futures contract approaches expiry, its price generally converges toward the spot price. This convergence affects traders using futures strategies.
FAQs
Does contango mean traders expect price to rise?
Not necessarily. Carry costs and demand for leverage also matter.
Can crypto futures stay in contango for months?
Yes.
What happens at expiry?
The futures price generally converges toward the settlement price.