Contango

Contango is a market condition where the futures price of an asset is higher than the expected spot price at the time of expiration. This often occurs in commodity markets where there are costs associated with storage and insurance.

In cryptocurrency, contango is common and is driven by the demand for leverage and the cost of capital. Traders can profit from contango by selling futures and buying spot, a strategy known as cash-and-carry.

This allows them to capture the premium as the futures price converges toward the spot price at expiration. Contango is a normal market state but can become extreme during periods of high demand for long exposure.

It provides a baseline for understanding the cost of holding a long position in the derivatives market. Analysts use the shape of the futures curve to gauge market expectations.

Understanding contango is fundamental to basis trading and derivative strategy.