Contango may seem daunting to those new to investing or unfamiliar with futures contracts, but it doesn’t have to be. Simply put, contango occurs in a market when futures prices for a commodity are greater than the current spot price. The idea is that, eventually, these prices will converge. Salman Khan of the Khan Academy illustrates.
From the first video, you’ll understand:
- What it means to say a market is “in contango”
- The rationale behind contango and why you may see it in the market
From the second video, you’ll understand:
- What severe contango means and how traders take advantage
- Whether severe contango is a bullish or bearish signal for individual commodities