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Normal Backwardation and Contango

  • When the futures contracts have substantial time to maturity then the futures prices are different from the expected future spot prices
  • When futures prices are greater than the expected future spot prices then the scenario is termed
  • as contango
  • When futures prices are lower than the expected future spot prices then the scenario is termed as normal backwardation
  • Normal futures curve: When futures prices are greater for greater maturity
  • Inverted futures curve: When futures prices are lower for greater maturity. (example: orange juice, because its value depreciates with time)




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