contango
Sign in to savethumb|upright=1.5|This graph depicts how the price of a single forward contract will typically behave through time in relation to the expected future price at any point in time. A futures contract in contango will normally decrease in value until it equals the spot price of the underlying commodity at maturity. This graph does not show the [[forward curve (which plots against maturities on the horizontal).]]
Article
9 sectionsContents
- Description
- Interest rates
- 2007–2008 world food price crisis
- Origin of term
- Economic theory
- See also
- Further reading
- References
- General references
thumb|upright=1.5|This graph depicts how the price of a single forward contract will typically behave through time in relation to the expected future price at any point in time. A futures contract in contango will normally decrease in value until it equals the spot price of the underlying commodity at maturity. This graph does not show the [[forward curve (which plots against maturities on the horizontal).]]
Contango is a situation in which the futures price (or forward price) of a commodity is higher than the spot price. In a contango situation, arbitrageurs or speculators are "willing to pay more for a commodity [to be received] at some point in the future than to purchase the commodity immediately. This may be due to people's desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today." On the other side of the trade, hedgers (commodity producers and commodity holders) are happy to sell futures contracts and accept the higher-than-expected returns. A contango market is also known as a normal market or carrying-cost market.