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  • May 2, 2022
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Stabilized Contango Contract

A forward contract/ futures contract that has a flat/ constant contango over the course of its lifespan. Contango occurs when forward contracts/ futures are traded at a premium over spot. In commodity markets, this situation holds when a far month delivery is priced higher than a near term delivery.

For non-perishable commodities, like gold, contango is the cost of carry. Gold is said to be in constant contango: its utility, being not for consumption, contributes to that stability.

Anyway, the difference between spot and future prices is not flat. Commodities are not strictly in contango/ backwardation all along; but rather tend to alternate between contango and backwardation depending on the market dynamics and fundamentals.

This contact is also referred to as an advanced premium forward or a flat rate forward.


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