Contango vs Backwardation: What the Futures Curve Means for the Chart You Trade

Contango is when futures for later delivery trade above nearer months and above spot, so the futures curve slopes up. Backwardation is the reverse, with nearer months above later ones and futures below spot, so the curve slopes down. Nearly every guide ranking for the term gets that part right. I read sixteen of them on October 21, 2026, and one even describes backwardation as an upward-sloping curve. None quote the CFTC's own glossary, and none mention the jump a continuous oil chart makes at the roll when nobody traded the move. So this is the version with the regulator's and the exchange's definitions, what causes each shape, a contango vs backwardation table, roll yield, the April 2020 oil contract, and then what it all means for the chart you trade. I build a chart grader, so the last section is what an AI grade can and can't see on a futures chart.

Quick Answer: What Are Contango and Backwardation?

The two primary definitions don't measure against quite the same thing. The CFTC's futures glossary gives the contango definition as a "market situation in which prices in succeeding delivery months are progressively higher than in the nearest delivery month." No spot price in it at all. Its backwardation definition is a "market situation in which futures prices are progressively lower in the distant delivery months," and it points you to "Inverted Market" for the same idea. CME Group's lesson on contango and backwardation measures against spot instead: in contango "the forward price of a futures contract is higher than the spot price," and in backwardation it's lower. The two framings mostly line up, since the front month tends to sit close to spot.

Some guides define contango against the expected future spot price instead of today's. That usage goes back to Keynes. Wikipedia's backwardation article says he "compared futures prices not to the current spot price, but to the expected spot price in the future," which can't be observed when the futures price is set. Exchanges and regulators stick to prices you can see, and this post does too. The short version of contango in futures: a curve where later delivery costs more.

What Causes Contango and Backwardation?

Mostly the cost of holding the physical stuff, and how much of it is around. Expectations move the curve too, and that's where a lot of guides overreach into calling it a forecast.

Carry: why later months usually cost more

A barrel of oil you want in three months has to sit somewhere for three months. Someone pays for the tank, the insurance and the money tied up in the barrel. The CFTC's glossary calls these carrying charges, which "include insurance, storage, and interest on the deposited funds," and says "it is a carrying charge market when there are higher futures prices for each successive contract maturity." CME's lesson lists the same three: "storage, financing (cost to carry) and insurance costs." A glut pushes the same way. Plenty of barrels today and weak demand for them press spot and the front month down relative to later months.

Carry also puts a lid on how steep contango can get. Here are made-up numbers: spot oil at $50.00, one month out at $50.40, two months out at $50.80, and a carry cost of $0.50 a barrel a month. Each month sits $0.40 above the last, under the cost of carrying a barrel, so nobody can earn anything by storing. If the one-month contract traded more than $0.50above spot, someone could buy the barrel, store it, sell it forward and lock in the difference, and that buying and selling squeezes the gap back. Then-CFTC Commissioner Dan Berkovitz put it in a footnote to his May 7, 2020 statement: when the future price beats the current price "by more than it would cost to store the commodity until that future point in time," a person can buy, store and sell later. "Contango thus incentivizes storage." That's the mechanism. It isn't a strategy for anyone with a margin account and no tanks.

What is convenience yield?

Convenience yield is the benefit of having the physical commodity on hand instead of a promise of it later. A refinery with barrels in the tank keeps running. One waiting on a delivery date might not. CME describes it as "an implied return on warehouse inventory" and spells out the inverse: "When warehouse stocks are high, the convenience yield is low and when stocks are low, the yield is high." Wikipedia's contango article sums up the balance: "Contango therefore occurs when financing and storage costs exceed the convenience yield." Flip it and you get backwardation. When stocks run low, people pay up to hold the thing now, and nearer months trade above later ones. The CFTC calls that an inverted market, "characteristic of markets with supply shortages." Made-up numbers again: spot at $50.00, one month out at $49.30, two months out at $48.70.

Expectations, and why the curve flips

Carry and inventories aren't the whole story. FINRA's Regulatory Notice 10-51 lists storage, interest and "expectations concerning supply and demand for the commodity" among the factors behind a gap between futures and spot. CME says futures prices change as traders change their views of the expected spot price, "so the forward curve changes and may move from contango to backwardation." A market can sit in one shape for months and then flip when a shortage hits or a glut clears. So no shape is permanent, and none of them tells you where price goes next. The FAQ below takes the bullish or bearish question head on.

Index and currency futures carry rates, not storage

Nobody pays to warehouse the S&P 500. For index futures the carry is financing net of the dividends the stocks pay, which the stock futures explainer walks through as fair value. For currency futures it's the gap between the two currencies' interest rates, covered in currency futures vs spot forex. Same words, different engine. The storage logic also assumes you can actually store the thing. For goods that spoil or can't be kept long, the months are less tied to each other.

Contango vs Backwardation: What's the Difference?

Here are the two side by side, from the curve's shape down to what each does to a fund and to a continuous chart. Each row traces to the CFTC, CME or FINRA, except the continuous-chart row, which comes from TradingView's help pages and the arithmetic of the roll.

The rows that matter to a trader are the last few. The shape decides what rolling costs, which way a fund drifts against spot and which way an unadjusted continuous chart jumps.

On which shape is more common, many guides call contango the normal market and backwardation the inverted one, and the CFTC's terms (carrying charge market, inverted market) lean the same way. But a market isn't one or the other for good. FINRA's Regulatory Notice 20-14 from May 2020 says "the oil futures market has experienced both periods of backwardation and contango over the last decade." So skip any guide that tells you oil is "usually" in one of them.

To tell which one a market is in, compare the listed months. One chart can't show you, because a single contract has no curve. Put the front month next to the second month (CL1! against CL2!, or two dated contracts), or pull up the whole strip of months on your broker's quote screen. Later months higher means contango. Lower means backwardation. A curve can also be mixed, sloping one way at the front and the other way further out. Producers and users hedge along that curve, so its shape also changes what holding a hedge costs or earns over time.

Two terms ride along. Basis, per the CFTC, is "the difference between the spot or cash price of a commodity and the price of the nearest futures contract," typically cash minus futures, so it's negative in contango. A calendar spread is "the purchase of one delivery month of a given futures contract and simultaneous sale of a different delivery month of the same futures contract," which is a position on the curve itself and a topic of its own. The trading terms glossary has the rest of the vocabulary.

Why Do Futures and Spot Converge at Expiry?

Because at expiry a futures contract becomes a contract for delivery right now, which is what spot is. The CFTC's glossary defines convergence as "the tendency for prices of physicals and futures to approach one another, usually during the delivery month," also called "a narrowing of the basis." CME gives the reason: the futures price converges with the spot price, "otherwise an arbitrage opportunity would exist." FINRA's Notice 10-51 says they "generally converge as the futures contract expiration approaches."

That has a chart consequence people miss. If spot held perfectly still, a contract in contango would drift down toward it over its life, and a contract in backwardation would drift up. The premium or discount bleeds out of the price as the days pass. That slow drift is the raw material of roll yield, two sections down.

Note the word tendency. In May 2020 Commissioner Berkovitz said the price of the expiring May WTI contract "diverged from the price of crude oil in the physical market, just when the prices in the futures and physical markets should have been converging." Convergence is what usually happens, not a law.

Bitcoin futures: a premium or a discount

Cash-settled futures follow the same logic without a warehouse. CME's article on how to trade Micro Bitcoin futures says there's "an embedded cost of carry to hold the position to expiry," that "as the time to expiration increases, the basis (price difference between futures and spot) becomes greater," and that near expiration the contract "converges and settles" to CME's bitcoin reference rate. CME's article asks why spot is often below the futures price, but dated bitcoin futures can sit at a premium or a discount, so check rather than assume. The CFTC's explainer on bitcoin futures ETFs describes the contango case in plain words: traders "pay a roll premium" when they roll from the expiring month to a later one. The bitcoin futures guide covers CME's contracts and their roll, and perpetual futures are the exception: they never expire, so they have no curve, and a funding payment does the job convergence does here.

What Does the Futures Curve Do to the Chart You Trade?

This is the part the definition pages skip, and it's the part you actually see. A futures chart and a spot chart of the same market print different numbers on the same candle, because the futures price carries the basis. Say spot XAUUSD shows a made-up $1,000.00 and the front GC contract $1,004.00. A support line you drew at $1,000.00 on spot sits around $1,004.00 on futures, $4.00 away, and the gap changes as the contract ages. The gold vs XAUUSD breakdown covers the product differences, and the GC chart page and XAUUSD chart page show each one graded. Oil works the same way, CL on NYMEX against a dealer's spot oil CFD, and the USOIL chart pageshows a grade on a WTI chart. Levels from one don't transfer one-to-one to the other.

Continuous charts and the roll jump

A lot of futures screenshots are continuous charts, like CL1! or GC1! on TradingView. That isn't a contract. TradingView's help page calls it "an artificial financial instrument derived by linking multiple individual futures contracts with different expiration dates," and 1! is the front month. The switch to the next contract follows a volume rule: TradingView's page on switching dates says the main condition is the next contract's daily volume exceeding the current one's, with the rule set per symbol and applied across its history. Its own example is COMEX:GC1!, which moved off the August 2022 contract on July 28, 2022, when August's volume fell below December's. August didn't expire until August 29.

At that switch the chart stops plotting one month and starts plotting the next. In contango the next month is dearer, so an unadjusted chart can jump up by about the spread between the two months. In backwardation it can jump down. Nobody traded that jump. TradingView's fix is back-adjustment for continuous futures, which it describes as adjusting the data of previous contracts "to remove the roll gap." The setting is called "Adjust for contracts changes" (the B-ADJ button at the bottom of the chart), and per that page it's disabled by default and not yet offered on every futures symbol. It works by shifting all earlier data by the difference between the new and old contracts' closes near the switch. The seam disappears, but old highs and lows move, so they stop matching prices that actually traded.

The second month, CL2!, is its own line. It sits above CL1! in contango and below it in backwardation, and it has seams of its own. Volume moves too. CME's lesson on contract rolls says traders decide when to move "by watching volume of both the expiring contract and next month contract," so in the days around the switch the old month's volume dries up while the new one fills in. The open interest vs volume guide explains why those two numbers shift at different speeds.

Expiry dates differ by contract, so don't assume a calendar. CME's CL spec ends trading three business days before the 25th calendar day of the month before the delivery month (four if the 25th isn't a business day), so the December contract stops trading in November. Micro WTI expires a day earlier than the matching CL contract and settles in cash against CL's daily settlement price, which the micro futures guide covers along with sizing. The roll isn't the only seam either. The daily maintenance break and the weekend close leave gaps too, and the futures trading hours breakdown maps those.

The practical version: know which of these rows your screenshot is before you read a level or a gap off it. A dated contract or a back-adjusted continuous chart gives you clean structure. An unadjusted continuous chart gives you a seam every roll.

What Is Roll Yield, and Why Do Futures Funds Drift From Spot?

Plenty of commodity funds that trade like stocks hold futures, not barrels, and roll them, which is where the curve shows up in their charts. FINRA's investor page on futures and commodities says many popular commodity tracking products "track futures on that commodity instead" of the spot price, that they "typically will track or hold futures contracts on a rolling basis," and that "the performance of a futures investment over longer periods can diverge, potentially significantly, from that of the spot price of the same commodity."

FINRA's Regulatory Notice 10-51 from October 2010 names the mechanism. A fund rolling its position faces different prices between the contract it sells and the one it buys, and "this difference is called the roll yield." In contango the fund sells the cheaper expiring month and buys the dearer next one, "resulting in a loss, or negative roll yield." In backwardation it's the reverse, a positive roll yield. The notice keeps it honest. A footnote says contango "does not necessarily lead to negative returns, but can be a drag on performance relative to the spot commodity," and the main text says the gap "is not tracking error, because the futures-linked products are designed to track futures." One nuance from a roll-yield white paper hosted on CME's site: the drag isn't a fee charged on roll day. It builds while each contract converges toward spot, and the roll just moves the fund into the next, dearer contract.

So a futures fund's chart can lag or lead the commodity's spot price for reasons no candle explains. The oil trading guide covers that for crude funds, the silver guide for silver products, and the commodities overview across the board. Leveraged funds add a second, unrelated drift from their daily reset, which the leveraged ETFs explainercovers. FINRA's page notes that "geared ETPs can also amplify that divergence."

What Is Super Contango, and What Happened in April 2020?

Super contango has no official definition. It isn't in the CFTC glossary, CME's lesson or the CFTC's report on April 2020. Traders use it for a curve so steep that it runs past normal carry, usually because storage is running out. FINRA used the term in Regulatory Notice 20-14 on May 15, 2020: "Recently, the oil futures market has been in 'super-contango,' as oil storage capacity has diminished, which can exacerbate losses to investors who hold oil-linked ETPs for extended periods of time."

The month before is the dated case. Per the CFTC's November 2020 release on its staff report about April 20, 2020, the May 2020 WTI contract on NYMEX "fell from $17.73 per barrel to settle at -$37.63 per barrel on April 20, the day before the contract expired." That was its second-to-last trading day. It was the first time the WTI contract traded at a negative price since it was listed 37 years earlier. It expired the next day, April 21, at $10.01. The negative number belongs to that one expiring contract: the staff report says all other WTI expirations settled at positive prices on April 20.

Look at the curve and it makes sense. The CFTC's release lists three fundamental factors from the report: an oversupplied market at the start of 2020, an unprecedented drop in demand from COVID-19, and concerns about crude storage. The report's storage section describes a buildup of oil available for immediate use "pushing nearby prices lower," while "the expectation that demand would recover in the future kept forward prices elevated." The contract is physically delivered at Cushing, Oklahoma, 1,000 barrels each, so a long held to expiry needs somewhere to put the oil, at a time when storage was the worry. The spread between the May and June contracts widened from -$6.76 at the previous trading day's close to -$58.06 during the April 20 session, and by the end of April 21 it was back to -$1.56. The report doesn't call it super contango. It calls the result "a contango market with significant differences between individual expirations."

What Does an AI Chart Grade Read on a Futures Chart?

I build SnapPChart, so here's what it does with a futures chart, from the code. It grades one uploaded screenshot. It reads the symbol label and the timeframe when they're visible, plus the EMAs, VWAP, MACD, volume and structure drawn on the chart, and grades the setup as a with-trend continuation: a long on a pullback in an uptrend, or a short on a rally inside a downtrend. It doesn't grade reversals, the same continuation logic behind a momentum trading strategy. An unreadable volume panel counts as missing data, not weak volume.

What it never sees is most of this post. The curve. The other contract months. The spot price. Roll dates. Whether a continuous chart is back-adjusted. So a roll jump on an unadjusted CL1! looks to it like any other gap on the chart. Real gaps come in kinds of their own, covered in the guide to the types of gaps, and a roll seam is none of them. The fix is chart hygiene, not a feature: grade the contract you actually trade, or a back-adjusted continuous chart, and if a big jump lines up with the switch, treat it as the roll before you read it as structure.

Where the grader's symbol check recognises the label, it sets the class. CL1!, CL2!, GC1!, NG1!, CLZ2026, /CL, CL, GC, SI and USOIL read as futures, and XAUUSD, XAGUSD and GOLD read as metals. Charts it classifies as futures or metals top out at B. The cap is there because the scoring was built on stock momentum trading, and other instruments stay capped until each gets its own rules. Bare NG or HG, exchange-prefixed labels like NYMEX:CL1! and annotated labels like "CL1! (back-adjusted)" or a spelled-out "Crude Oil Futures" don't match that check, so the class comes from the model's own read of the chart, and I won't promise a ceiling for those.

1. Do the curve homework yourself.Which month you're in, when it rolls, whether the market is in contango or backwardation, and where spot is. None of it is in a grade.
2. Screenshot the chart you'll trade. The active contract or a back-adjusted continuous chart, symbol and time axis visible, trend in frame. The futures chart analysis page and the natural gas chart page show what a grade looks like on each.
3. Read the grade as a grade of that chart. Trend, pullback quality, levels, the stop and reward to risk, with B as the ceiling when it classifies the chart as futures or metals.
4. Skip the C grades.A C-grade trade that stops out costs the same as a B-grade one that stops out, and on a contract like CL that's real money.

There's more on AI chart analysis from a single screenshot, and the AI trading guide's section on what AI can't see applies to futures charts in full. If futures are new to you, the beginner's guide to trading futures covers margin, contract months and rolling before any of this matters.