Contango
A futures curve where later-dated contracts price higher than near-dated ones — the normal state for markets with storage costs, and a headwind for long roll strategies.
What is Contango?
Contango describes a futures curve sloping upward through time: each later expiration prices above the one before it. It is the market charging for storage, insurance, and financing — the “cost of carry” — and it is the default shape for most storable commodities most of the time.
How Contango works
The practical consequence lives at rollover: a long trader exiting the expiring front month and entering the richer back month pays the spread — repeatedly, if they hold across multiple cycles. Curve extremes carry information: steep contango in crude signals oversupply (storage filling); a flattening curve signals tightening balance.
Worked example
Front-month CL trades at $70.00 with the next month at $70.60. A swing long rolling forward sells at 70.00 and buys at 70.60 — surrendering $600 per contract of carry. Across four monthly rolls, that’s $2,400 of headwind before the trade thesis earns anything.
Contango vs related concepts
Side-by-side comparison of Contango against the most commonly confused alternatives.
| Concept | Definition | Category |
|---|---|---|
| Contango this term | A futures curve where later-dated contracts price higher than near-dated ones — the normal state for markets with storage costs, and a headwind for long roll strategies. | Futures Mechanics |
| Backwardation | A futures curve where near-dated contracts price higher than later ones — the signature of scarcity, and a tailwind for long roll strategies. | Futures Mechanics |
| Contract Rollover | The process of closing a near-expiration futures contract and opening an equivalent position in the next contract month — required to maintain exposure beyond a single contract's lifecycle. | Futures Mechanics |
| Front Month | The nearest-to-expiration futures contract month with active trading — typically the most liquid contract, where the vast majority of volume and open interest concentrates. | Futures Mechanics |
| Expiration | The date a futures contract terminates — at which point all open positions either physically deliver or cash-settle, depending on contract specifications. | Futures Mechanics |
Why traders fail Contango
Ignoring roll cost in multi-month theses. Day traders can ignore the curve; anyone holding across expirations cannot. Reading contango as bearish prediction — the curve reflects carry economics, not a forecast; steep contango has coincided with major bottoms.
Frequently asked questions about Contango
What is contango in futures?
A curve where later-dated contracts price above nearer ones, reflecting storage and financing costs. It's the normal state for most storable commodities.
Why does contango cost long traders money?
Each roll sells the cheaper expiring contract and buys the pricier next one, paying the spread. Held across many cycles, that roll cost compounds into a significant headwind.