Convergence

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Convergence is the idea that by the close of the contract, the price of a future eventually equates to the cash market. It varies by commodity and geography, but historically the relationship between the cash and futures markets has been fairly constant, with predictable seasonal variation.[1]

Convergence is important as a risk-offset for traditional market hedgers, who take opposite positions in futures from the cash market and use the transactions as collateral for bank lines of credit. [2]


References

  1. "Solutions to convergence problem proposed". The Farm Press.
  2. Variable storage rate next for CBOT wheat -NGFA. Reuters.