Explain the Term ‘Convergence’ in the Context of Futures Expiration

Convergence is the necessary price movement where the futures price and the spot price of the underlying asset become equal at the expiration of the futures contract. As the contract approaches its final settlement, the time value of money and the cost of carry diminish, and the arbitrage relationship becomes dominant.

Any remaining price difference offers a risk-free profit opportunity, which arbitrageurs quickly exploit, forcing the prices to converge.