Contango
When futures for later delivery cost more than the price for immediate delivery, the normal state when…
In plain English
When futures for later delivery cost more than the price for immediate delivery, the normal state when holding the asset has costs.
In contango, each contract further out in time is pricier than the one before. That usually reflects the cost of carry: storing, insuring and financing the asset until delivery.
For investors who keep rolling futures, steep contango is a slow drain: each roll sells the cheaper expiring contract and buys a dearer one. The opposite shape is backwardation.
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