# What Are Contango and Backwardation? Crypto Futures Curves

> Contango is when futures trade above spot; backwardation is when they trade below it. Learn what causes each in crypto and how to read the futures curve.

Updated: 2026-09-24

**Contango is when a futures contract trades above the spot price, and backwardation is when it trades below the spot price.** The terms describe the shape of the futures curve, which is the line you get by plotting futures prices against their expiry dates. In crypto, the curve tells you what the market is willing to pay for future exposure and where carry trades may exist.

## Key takeaways

- **Contango**: futures > spot, and later expiries usually trade higher.
- **Backwardation**: futures < spot, and later expiries usually trade lower.
- Both describe the **[basis](/learn/what-is-basis-in-crypto)**, the gap between a future and spot.
- In crypto, contango is often driven by **the cost of capital and demand for leveraged longs**.
- Futures **converge to spot at expiry**, so the basis shrinks over time in either state.
- On perps, **positive funding** is the equivalent of contango and **negative funding** is the equivalent of backwardation.

## Reading the futures curve

A futures curve (also called the term structure) lists the prices of contracts on the same asset with different expiry dates. Here is an illustrative curve in each state, assuming BTC spot is **$60,000**:

| Contract | Contango example | Backwardation example |
|---|---|---|
| Spot | $60,000 | $60,000 |
| 1-month future | $60,450 | $59,700 |
| 3-month future | $61,200 | $59,250 |
| 6-month future | $62,300 | $58,800 |

In the contango column, each later contract is priced higher. In the backwardation column, each later contract is priced lower. Real curves are not always this clean. A curve can be in contango at the front and flat or inverted further out.

## What causes contango

In traditional markets, contango mainly reflects the **cost of carry**: the interest you give up, plus storage and insurance, when you hold an asset until a future date. A future priced above spot compensates the seller for carrying the asset.

Crypto has no storage cost, but the same logic applies to capital. A trader who buys spot and sells the future ties up money until expiry, so the future needs to pay a premium roughly in line with what that money could earn elsewhere. On top of that, crypto markets often have strong demand for leveraged long exposure. Buying a future needs only margin, so traders who want leverage bid futures above spot. Arbitrageurs then sell the future and buy spot, which caps how wide the premium gets.

## What causes backwardation

Backwardation appears when demand to sell futures is stronger than demand to buy them. Common reasons in crypto:

- **Hedging**: miners, funds or token holders short futures to protect the value of coins they hold.
- **Bearish sentiment**: traders use futures to short because it is easier than borrowing spot.
- **Stress events**: during sharp sell-offs, futures can briefly trade below spot as longs are liquidated.

In commodity markets, backwardation can also come from a "convenience yield," the benefit of holding the physical good right now. That concept matters less in crypto, though staking yield on some assets can play a similar role.

## Worked example: measuring contango

Using the 3-month contract from the contango column, assume exactly 90 days to expiry:

- Basis = $61,200 − $60,000 = **$1,200**
- Basis % = $1,200 ÷ $60,000 = **2.0%**
- Annualized basis = 2.0% × 365 ÷ 90 ≈ **8.1%**

For the 3-month contract in the backwardation column:

- Basis = $59,250 − $60,000 = **−$750**
- Basis % = −$750 ÷ $60,000 = **−1.25%**
- Annualized basis = −1.25% × 365 ÷ 90 ≈ **−5.1%**

Annualizing lets you compare contracts with different expiries, and compare dated futures with funding APR on perpetuals. The annualized figure is simple, not compounded. You can run your own numbers in the [basis calculator](/tools/basis-calculator).

## Contango and backwardation on perpetual futures

Perpetual futures have no expiry, so they do not have a curve in the usual sense. They still trade at a premium or discount to spot, and that gap feeds the funding rate:

| State | Perp vs index | Typical funding | Who pays |
|---|---|---|---|
| Contango-like | Perp above index | Positive | Longs pay shorts |
| Backwardation-like | Perp below index | Negative | Shorts pay longs |

The [premium index](/learn/what-is-the-premium-index) measures this gap directly. A perp in persistent contango tends to show persistently positive [funding rates](/learn/what-is-funding-rate).

## Why it matters for traders

- **Carry trades**: contango creates the opportunity for a [basis trade](/learn/what-is-a-basis-trade), where you buy spot and short the future to earn the premium as it converges.
- **Reverse carry**: backwardation can make the opposite trade possible, shorting spot and buying the future. That needs borrowed coins, which adds cost. See [reverse cash-and-carry](/learn/reverse-cash-and-carry).
- **Roll cost**: a long futures holder in contango pays the premium each time they roll into the next contract, because the future drifts down toward spot. In backwardation, rolling longs gain instead.
- **Sentiment reading**: a steep contango can point to crowded leveraged longs. Backwardation can point to heavy hedging or fear. Neither predicts price on its own.

## Common mistakes

- **Assuming contango is free money.** The basis is only locked in if you hold to expiry. In between, the basis can widen and produce mark-to-market losses on the futures leg.
- **Comparing raw basis across expiries.** A 1% basis with 30 days left is a much higher annual rate than 1% with 180 days left.
- **Ignoring fees and margin.** Trading fees on both legs and the capital held as margin reduce the real return.

## How ArbTide helps

ArbTide's [cash-and-carry strategy page](/carry) explains how traders approach contango, and the [live funding rates page](/funding-rates) shows where perps are trading in contango-like (positive funding) or backwardation-like (negative funding) conditions across venues.

## Frequently asked questions

### What is contango in crypto?

Contango is a market state where futures prices are higher than the spot price, and later expiries are usually priced higher than nearer ones. In crypto it typically reflects the cost of capital and strong demand for leveraged long exposure.

### What is backwardation in crypto?

Backwardation is when futures prices are below the spot price. In crypto it usually appears when traders are hedging heavily, sentiment is bearish or there is strong demand to short.

### Is contango bullish or bearish?

Contango is common in rising or neutral crypto markets because traders pay a premium for leveraged long exposure. A steep contango can signal crowded longs, but it is not a price prediction on its own.

### How do contango and backwardation relate to funding rates?

On perpetual futures, a perp trading above the index usually leads to positive funding, which is the perp version of contango. A perp trading below the index usually leads to negative funding, which is similar to backwardation.

### Can traders profit from contango?

A common approach is a cash-and-carry trade: buy spot and short the future, then hold until the future converges to spot at expiry. The return is the basis, minus fees and funding costs of the capital, and the trade carries exchange and margin risks.