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What is Spot price, Contango and Backwardation? How are they related?

Spot Price

The spot price is the current market price for immediate delivery of an asset.

Futures prices may trade above or below the spot price depending on market conditions.

Contango

Contango is a market condition in which futures prices are higher than the spot price of the underlying asset.

This condition often reflects storage costs, financing costs, or expectations of future supply and demand.

Backwardation

Backwardation occurs when futures prices are lower than the spot price of the underlying asset.

Backwardation may reflect supply constraints or strong near-term demand.

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