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Contango is the normal situation in the futures market when the price of an asset being delivered in the future is higher than the price of that same asset if it was delivered now. Usually, the further the delivery date the bigger contango is. For example, if someone is obligated to deliver one ton of aluminium in three months, he has to store it for that period (cost of carrying) and doesn’t receive any interest on the physical aluminium, while he could’ve if he sold it right now for cash instead of holding it for three months. To offset these expenses, the price of a futures contract is higher than the current market price. The smaller the period of a futures contract, the lower the contango is.

In case of the inverse Bitcoin futures market, the current trading price of the futures contracts is usually higher than the index price against which the contracts are settled on the expiry day. New futures trading period usually stars at a premium compared to the index price, and later converges towards the index price as the period expires.

Those who hold short positions, prefer the market to be in contango since the price will converge down towards the spot/index price.

Opposite term: Backwardation

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