Home » Convergence

Convergence

« Back to Glossary Index

The process of futures and spot prices approaching one another is called convergence. Normally, the contract price of a futures contract is higher than the current price of the underlying asset (normally a commodity).

The futures contract price is higher because of the effect of the time value of money. As the expiration date nears, the spread between the spot price and the futures contract price becomes smaller and smaller. On the delivery date of the contract, the futures and spot prices should be equal.

Related
Monetary Policy

Monetary policy refers to the actions taken by a nation’s central bank to influence the availability and cost of money and credit to Read more

Kathy Lien

Kathy Lien is an expert in global currencies, author, and Managing Director of BK Asset Management. For retail FX traders back Read more

European Parliament

The European Parliament is the European Union’s law-making body. It is directly elected by EU voters every 5 years. It is a Read more

Open Position

An active trade that has yet to be closed.

« Back to Glossary Index