At expiry, a futures price must equal the spot price — otherwise arbitrage is free money. This is convergence. Before expiry, the gap between spot and futures is the basis (Basis = Spot − Futures).

Hedgers don't eliminate risk; they swap price risk for basis risk. A short hedger's effective sale price is F₀ + Basis₁, so any unexpected change in basis is the residual exposure.

Contango: Futures > Spot (positive carry, e.g. storage costs). Basis is negative.
Backwardation: Futures < Spot (convenience yield exceeds carry). Basis is positive.
Cross-hedging: Hedging asset A with futures on asset B introduces extra basis risk.

Scenario	Spot	Futures	Basis
Contango	$100	$104	−$4
Backwardation	$100	$97	+$3
At expiry	$100	$100	$0