Term Structure of Futures

The term structure of futures describes the relationship between the prices of futures contracts with different expiration dates for the same underlying asset. In digital assets, this structure can exist in contango, where prices rise with time, or backwardation, where prices fall with time.

Backwardation is common in crypto markets during periods of high demand for immediate delivery. Contango typically reflects the cost of carry, including storage and interest.

Understanding this structure is vital for traders managing long-term positions to avoid the negative impact of rolling contracts. It provides insights into the market's consensus on future supply and demand dynamics.

Traders use the term structure to identify opportunities for calendar spreads. It reflects the cost of capital and the market's risk appetite over specific time horizons.

By analyzing the slope, participants can infer expectations for future volatility and liquidity. This framework is essential for constructing robust hedging strategies across various timeframes.