so according to the formula given, future price will always be higher than the cash...because 't' will always be higher than 1 yr. but from your experience has it gotten more than 40 - 50 pips...trying to find a historical data.. 'scarletfire' said for the most part it will go parallel...unless it is arround sept ( futures expiration dates etc .. )where it will almost merg this gives me a smile face
You haven't quite got it yet. First, "t" is expressed in years. With 3-4 days left till expiration, t is about 0.01. Second, futures price is higher than spot (cash) price for euro, because short-term USD interest rate happens to be greater than short-term EUR interest rate. This is known as "contango." For, say, cable (GBP/USD), aussie (AUD/USD), etc., it's just the opposite: futures price is lower than cash price. This is known as "backwardation." As to the largest (recent) euro futures-cash spread, around the last rollover, Monday, June 13th, it was 41-42 pips, for the front (Sep.) contract-to-be. For the expiring front contract, they don't "almost" merge, they merge exactly. On June 10th, at 2:15 pm ET, we had: EUR/USD 1.2118 / 20 6EM5 1.2118 / 20 6EU5 1.2160 / 61 Incidentally, this thread really belongs in the "Forex Trading" forum, not here in "Options."