Backwardation
When a futures contract for later delivery is cheaper than the price for immediate delivery, usually…
In plain English
When a futures contract for later delivery is cheaper than the price for immediate delivery, usually because people want the thing now.
Normally it costs more to buy something for delivery months away, because someone has to store, insure and finance it until then. That upward slope is contango. Backwardation flips it: the near-term price sits above the later ones.
It usually signals a squeeze. Buyers are so desperate for oil, wheat or metal today that they pay up for it now. For traders holding futures, backwardation also changes the cost of rolling from one contract to the next.
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