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Contango

Where forward prices for non-perishable commodities are higher than spot prices. The forward premium reflects the cost of storage, financing and insurance. Contango is the normal relationship between spot and forward prices and is the opposite of backwardation. The contango should not exceed the costs involved in holding goods for forward delivery, the cost of carry. Comparisons can easily be made between the spot plus storage price and the futures price and any difference can be arbitraged.