Stock Market Glossary
Contango
Market situation in which futures prices are higher than the current spot price.
In brief: Market situation in which futures prices are higher than the current spot price.
Meaning in practice
Contango typically arises from storage costs or positive carry. For commodity ETFs, it means rolling losses because cheaper short-term contracts have to be exchanged for more expensive longer-term ones.
Context for investors and traders
For investors, the term becomes practical in the context of objectives, time horizon, risk capacity and costs. A suitable solution can differ between two people even when they consider the same product or metric.
How to use this in practice
Use the term first to describe the situation and add verifiable data: time frame, benchmark, costs and liquidity. Only then does it become an assessment that can be connected to an investment objective and risk budget.
What to keep in mind
Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.