Convergence

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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.

BREAKING DOWN 'Convergence'

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

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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 >>

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