As the delivery date specified in the futures contract draws nearer, the gap or basis between the futures and spot prices for the same asset narrows.

Question

Quizplus · Accepted Answer

This phenomenon occurs because as the delivery date approaches, the futures price and the spot price tend to converge, reducing the basis, which is the difference between the futures price and the spot price. This convergence is due to the alignment of supply and demand factors for the futures contract and the underlying asset as the delivery date nears.

As the Delivery Date Specified in the Futures Contract Draws