Contango Definition

Contango Definition

See Also:
Future Value
Discount Rate
Exchange Traded Funds
Interest Rate Swaps

Contango Definition

Contango is a term used to describe the forward yield curve when it is upward sloping and the price of a future commodity is above that of the spot rate. This is the opposite of backwardation.

Contango Meaning

Contango usually occurs when there is a belief that the commodity is in overabundance or surplus in the market. It’s usually a non-perishable item, like gold and oil. The large supply on hand will cause current prices to drop, while future rates remain higher. Often times there is room for arbitrage in a contangoed commodity market depending on which way the interest rates are moving.
In a contangoed market, an investor or trader would buy the short term interest rates if it were expected to fall. They would do this while simultaneously selling a future. In contrast, a trader would be expected to sell in the short term while simultaneously buying future rates assuming that the short term interest rates were expected to rise. Many investors will also lock in a long position even if the price is higher. So they are able to protect themselves from even higher future prices.

Contango Example

Bob is a trader for Chevaco Inc., a company that specializes in the oil and gas industry. Bob has been observing prices of oil for some time now. Then he realizes that the market is in contango where the price of a future in oil is listed at $80/barrel. The future spot rate of oil is listed around $72/barrel and, current prices of oil are around $60/barrel. Due to the circumstances involved Bob has decided to buy the spot rate at $72/barrel. Even though this price is much higher than the current price of $60, Bob believes it is best to reduce the risk and lock in a price. If the price of oil does rise to $80 he will have saved the company a lot of money.
contango definition


Is Mexico the New China?

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

Read More »

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

Product Life Cycle Stages

See also: Product Life Cycle Company Life Cycle Why You Need a New Pricing Strategy Increasing Pricing on Products What is the Product Life Cycle? A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


August 7-10th, 2023

WIKI CFO® - Browse hundreds of articles
Skip to content