Contango refers to the situation in futures trading when the current price of a commodity (called the 'spot price') is lower than the price of a far future delivery. It is the opposite of Backwardation. Contango reflects a situation in which it is more expensive to buy a commodity in the far future than it is in the near future, often because the price must rise over time to cover the costs of storage in the meantime. In addition to the direct cost of physical storage, there is also an opportunity cost to cover, because the money tied up in the commodity could be earning interest elsewhere. Interested in learning more about commodities?
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