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Convergence


What does Convergence mean?

The tendency of difference between futures contract price and spot price of the underlying asset to decline continuously, so as to become zero on the date of maturity. At maturity, the two prices converse and match.

Futures Knowledge Explains Convergence

The word ‘convergence’ refers to two things coming closer and ultimately joining together. It has a similar meaning in futures markets also. At the start, the contract price is normally higher. But with the passage of time, the contract nears expiration, and the futures price and the spot price converge and difference reduces. Om maturity date, both prices become same.



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