Explain the Term "Convergence" in Futures Pricing ⎊ Path

Explain the Term “Convergence” in Futures Pricing.

Convergence is the principle that the price of a futures contract and the price of its underlying spot asset must become equal at the contract's expiration date. As the expiration approaches, the difference between the two prices (the basis) narrows until it reaches zero.

This ensures the integrity of the pricing mechanism.

Define the Term ‘Delivery Date’ in a Physically-Settled Futures Contract

What Are the Criteria for a Financial Institution to Become a Clearing Member of a CCP?

Does Using Futures Contracts Instead of the Spot Asset Change the Principle of Delta Hedging?

Define ‘Convergence’ in the Context of Futures Trading

Can a Traditional Futures Contract Remain in Contango until Expiration?

Why Is the Basis Expected to Approach Zero as the Futures Contract Nears Expiration?

Explain the Concept of ‘Convergence’ in Futures Trading

How Does the Basis Change as the Futures Contract Approaches Expiration?