While the word contango may sound mysterious, it is used to describe a fairly normal pricing situation in futures. A market is said to be in contango when the forward price of a futures contract is above the expected future spot price. Normal backwardation, which is essentially the opposite of contango, occurs when the forward price of a futures contract is below the expected future spot price. Because contango and backwardation are known states in the market, traders can employ strategies that attempt to exploit them.
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