Contango

The price of an asset for future delivery is usually higher than the current 'spot price'. When the price of a futures contract is above the spot price, the market is said to be in 'contango'.

The future price can be higher because there are often cost associated with storing and insuring an asset until the delivery date. These 'costs of carry' are added on to the current price, and the seller may well add more, due to the potential loss of interest on the money the seller would have received had the buyer purchased immediately.

The reverse of contango is called 'backwardation', where the current cash price may be higher than the future price, perhaps due to a short term supply issue.

What to do if you need more help

If you need more help with your specific commercial loan, mortgage or insurance requirement please speak to a professional financial adviser.

We hope you found this information useful.

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