Relating to futures, a theory that involves the price of futures and the time to expiration. All else being equal, the theory suggests that as a futures contract approaches expiration it will trade at a higher price compared to contracts further from expiration. For example, if the spot price of futures on crude oil is trading $50, while the futures on crude oil for delivery in six months is trading $40, that would be described as backwardation (downward sloping). The opposite phenomenon is referred to as contango.
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Backwardation
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