Contango, a Stock Exchange term for the rate of interest paid by a bull who has bought stock for the rise and does not intend to pay for it when the Settlement arrives. He arranges to carry over or continue his bargain, and does so by entering into a fresh bargain with his seller, or some other party, by which he sells the stock for the Settlement and buys it again for the next, the price at which the bargain is entered being called the making-up price. The rate that he pays for this accommodation, which amounts to borrowing the money involved until the next Settlement, is called the contango.

Being the entry for CONTANGO in the 1911 Encyclopedia Britannica, the text of which lies within the public domain.

A term commonly used in futures markets. Contango occurs when the spot price of a commodity is lower than the price of a contract for future delivery, or more generally, when far futures are more expensive than near futures. In other words, people are willing to pay to not have to take immediate possession of something that they wish to have at some future time. Contango is the opposite of backwardation.

Earlier this year, there was an extreme case of contango in the crude oil market, as 6 month contracts were trading at around $15 per barrel above spot. Apparently the greedy buggers in OPEC pumped lots more of the stuff than demand warranted, which overwhelmed the available storage capacity. Trading firms leased huge tanker ships, effectively using them as floating storage tanks.

Con*tan"go (?), n.; pl. Contangoes (#). [Prob. a corruption of contingent.]

1. Stock Exchange

The premium or interest paid by the buyer to the seller, to be allowed to defer paying for the stock purchased until the next fortnightly settlement day.


2. Law

The postponement of payment by the buyer of stock on the payment of a premium to the seller. See Backwardation.

N. Biddle.


© Webster 1913.

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