Contango
When the futures price sits above the spot price — the normal shape of most markets.
Definition
Contango is the condition where a futures contract trades at a price higher than the current spot price of the underlying. For equities and indices this is the usual state, because holding the future saves the cost of funding the stock until expiry — that financing benefit, the cost of carry, gets added on top of spot. The further-dated the contract, the larger the premium tends to be.
Why it matters
Contango tells you the market is in its normal financing-driven state and helps frame rollover costs. As expiry approaches, the futures premium decays toward spot, so a long futures position in contango faces a small drag if spot stays flat. For traders rolling positions to the next month, contango means paying up to carry the long forward. The opposite condition is backwardation.
Example
If an index spot is at 22,000 and the near-month future trades at 22,090, the market is in contango by 90 points. That 90-point premium reflects the interest cost of carrying the index minus any expected dividends. By the last day before expiry, the future and spot will converge to roughly the same price.
See it live
Compare spot and futures pricing in real time and watch the basis tighten into expiry on TradePulse.