Convergence

AAA

DEFINITION of 'Convergence'

A movement in the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of the time value.

INVESTOPEDIA EXPLAINS 'Convergence'

As a futures contract nears expiration, the futures price and the cash price converge to eventually become the same price (usually).

RELATED TERMS
  1. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  2. Derivative

    A security whose price is dependent upon or derived from one ...
  3. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
  4. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  5. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  6. Best To Deliver

    The security that is delivered by the short position holder in ...
RELATED FAQS
  1. What are some securities that have spot rates?

    Commodities, currencies and bonds are among the many assets that have spot rates. A spot rate is the current price quoted ... Read Full Answer >>
  2. How can traders use contango to take advantage of the storage shortage for crude ...

    Traders with access to physical oil and storage can make substantial profits in a contango market. Other traders may seek ... Read Full Answer >>
  3. What are the differences between divergence and convergence?

    "Convergence" generally means coming together, and "divergence" generally means moving apart. In the world of finance and ... Read Full Answer >>
  4. How do traders identify confirmation of prices on a chart?

    Technical price confirmation comes in many different forms. The stock market is full of indicators, oscillators, patterns, ... Read Full Answer >>
  5. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  6. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
Related Articles
  1. Active Trading

    Tales From The Trenches: Volume Confirmed Broadening Pattern

    Find out how to make sense of this tricky - but profitable - formation.
  2. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  3. Active Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.
  4. Economics

    Why The Dollar’s Strength Can Continue

    Overall, the U.S. dollar has rallied this year, with the Dollar Index (DXY) now up by roughly 8 percent year-to-date, but the gain hasn’t been steady.
  5. Investing

    Is It Time To Buy Commodities?

    Despite the news, the Athens Stock Exchange is down less than 5 percent year-to-date, while the Shanghai Composite remains up more than 10 percent.
  6. Mutual Funds & ETFs

    5 Disadvantages of Mutual Funds Compared to ETFs

    In the mutual funds vs. exchange-traded funds debate, ETFs have some clear advantages.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB US Dollar

    Discover how an ETF can be used to bet on multiple different currency futures contracts with the PowerShares DB Dollar Index Bullish Fund (UUP).
  8. Chart Advisor

    Falling Coffee Prices Are Creating Opportunity

    Falling coffee prices is creating an opportunity for strategic traders. We'll take a look at some ideas.
  9. Stock Analysis

    Southwest & Cheap Oil: The Perfect Combination?

    Discover how falling oil prices (and well-timed futures contracts) benefit Southwest Airlines.
  10. Economics

    As Fed Prepares To Move, Gold Is Losing Its Luster

    Last week’s Semi-Annual Monetary Policy Report to Congress returned investors’ focus back to the fundamentals, and a general upbeat of the economy.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!