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. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  4. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
  5. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. What are the primary sources of market risk?

    Market risk is the risk of loss due to the factors that affect an entire market or asset class. Market risk is also known ... Read Full Answer >>
  5. How do I learn technical skills for trading commodities?

    Many resources are available for those seeking to learn to trade commodities, also known as futures, directly from the major ... Read Full Answer >>
  6. How can an investor make money from a decline in the electronics sector?

    Speculation methods, such as short selling, futures contracts and put options, offer investors a way to make money from a ... 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. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.
  5. Active Trading Fundamentals

    Invest In Gold Through ETFs

    The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ...
  6. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  7. Active Trading Fundamentals

    Where And How Should You Make Your First Trade?

    New traders should enter markets that offer the greatest opportunity for learning their craft while keeping risk at a minimum.
  8. Options & Futures

    Introduction To Trading In Oil Futures

    An introduction to oil futures, how the market arrives at oil futures prices, what futures prices mean, and how investors can exploit them.
  9. Options & Futures

    How To Lock In Low Oil & Gas Prices

    We provide a quick overview of how companies can manage the risk of adverse moves in commodity prices by hedging in the futures market.
  10. Active Trading Fundamentals

    Where And How To Trade Energy Stocks

    Energy futures set a high bar to entry for individual traders and investors, redirecting exposure into sector equities and exchange-traded funds.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center