A market condition where futures prices are lower than the expected spot price of the underlying asset.
Backwardation occurs when the futures price of an underlying asset trades below its current spot price, the opposite of contango. In equity markets, backwardation can emerge around events like dividend payouts or when there is strong demand to sell futures relative to the spot market, often signalling bearish near-term sentiment. Traders monitor the futures-spot spread across expiries to gauge whether the market is pricing in contango or backwardation at any given time.
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