 We were talking about the future contract we were and we were talking about the spot price and the future price So it is important to understand That the spot price of our commodity and the future price of that particular commodity are linked up So there is a relationship between the spot price and the future price of our commodity So in this section, I'll explain here. What is that relationship? What is the nature of that relationship? So the future price of any commodity, when you have to set it up, it is always set in advance That is, you are saying that for example, if it is January, then you are saying that in March, we will give you this value So the value of March is called your future price or delivery price We have also seen in this example that before it is there, we are limiting it So now this is an important thing When you set it up, then what do you keep in mind? You will keep in mind that it is the spot price So the spot price of any commodity is the value that if I want to take its delivery, then I will have to pay its value It is the spot price and spot price plays a very important role in determining the future price of that particular commodity Now, the difference between these two is that the traders, arbitrage traders, who sell things from one market to another or buy things at one time or sign contracts and sell them at some other time and earn profit from it We call these traders arbitrage traders So the difference between the spot price and the future price is their profit, which is the arbitrage traders Now, there is a formula that links up the forward price with the spot price And to link this up, we will account for one more important factor That is the cost of carry Now, the cost of carry means that if you have just sold your things, then the value you were getting and if you have sold something in the future, then the value you are getting is the difference between the cost of carry and the cost of carry All the expenses that you will have to bear, if you do not deliver this particular commodity then the additional charges, i.e. the storage cost, or you have to pay a tax, or you have to keep a staff for its maintenance or if it is a perishable commodity, then you will have to keep it in the freezer If you have to keep it in the fridge, then the extra cost that you have to pay for the freezer will include all the things in your cost of carry So therefore, when we are trying to build up and understand the relationship between the future price and the spot price we need to understand this particular weak inequality Here, we have put the sign of less than equal to f minus s less than equal to c Your forward price is the difference of your spot price which we were calling as spread We had named it as spread Your spread should be smaller than your cost of carry or should be at least equal to it So, if it is like this, only then you will be able to go for the futures contract Otherwise, you will not get into this kind of a contract that if your expenses increase, as compared to the profit that is coming to you in the future in the form of a future price, then you will never go into such a transaction or contract where the value that you are going to get in the future is less than your total expenses So, in that case, you will not get into that kind of a thing So, when we will decide what the future price will be and whether I have to go into the future contract or not, for this, I will definitely account for this particular inequality and you should be more realistic in that analysis of cost of carry that you will have to account for all those things Now, there is another very interesting thing that the future price converges into the spot price So, therefore, we need to link up between the two so that we know and as the time goes down between the futures contract that if it is one month or two days, then as the time goes down, the difference will go down and the spot price and future price difference will go down So, basically, they converge This is what I am trying to explain Now, the convergence depends upon two things The first one is that the interest of arbitrage is pure and then the important thing is So, if you reduce the time between the future price and the spot price we will see that the two will converge and the convergence depends upon these two things The first one is the arbitrage interest and the second one is the dynamics of the market forces supply and demand