Convergence

Convergence
Generally, the contract cost of a future contract is advanced compared to the existing cost of an underlying asset. The future contract cost is high due to the effect of money’s value. As the expiry date comes nearer, the difference between thespot cost and future start contracting which in turn makes the cost smaller. At the time of delivery of the agreement, the spot costs and futures should be similar. This procedure of spot costs and futures approaching each other is known as convergence.