Commodities & indices · Intermediate

Contango And Backwardation Explained

A 1-minute lesson from the MarketPro academy, one of 16 in commodities and indices.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

Short answer

Commodity futures with different expiry dates do not all trade at the same price. The relationship between near-term and longer-dated contract prices is described using two terms: contango and backwardation.

Contango

In contango, longer-dated futures contracts trade at a higher price than near-term contracts. This often reflects the cost of storing a physical commodity over time, plus financing costs, being priced into contracts further out.

Backwardation

In backwardation, longer-dated contracts trade at a lower price than near-term contracts. This can occur when there is strong immediate demand or concern about near-term supply shortages, making buyers willing to pay a premium for the commodity now rather than later.

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The shape of the futures curve can affect the returns of traders who hold rolling futures positions over time, even if the spot price itself does not change.
In contango, rolling a position forward can create a drag on returns, since a trader effectively sells a cheaper near-term contract and buys a more expensive longer-dated one.
In backwardation, rolling can have the opposite effect.

This dynamic is a key reason why long-term returns on a commodity futures position can differ meaningfully from the simple change in the commodity's spot price over the same period.

Lesson 6 of 16 in Commodities and indices

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Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

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