Futures Contango

Futures contango is a market state where the price of a futures contract is higher than the expected spot price at the time of expiration. This often happens in markets where investors are bullish and willing to pay a premium for future delivery, or where the cost of carrying the asset is high.

In crypto, contango is common and provides the basis for cash and carry arbitrage. Traders who sell these expensive futures contracts and buy the cheaper spot assets can capture the difference as the contract price eventually converges to the spot price.

Understanding the term structure of futures, which includes both contango and backwardation, is vital for predicting market sentiment and identifying arbitrage opportunities. It is a fundamental indicator of the cost of leverage and the demand for long exposure in the market.