Cash-and-Carry Arbitrage

Core idea

Cash-and-carry arbitrage buys an asset and sells a related future when the futures premium appears large enough to cover financing and carrying costs. The position is held toward convergence at expiry.

Implementation

Annualized basis must be evaluated after funding, custody, margin, fees, and contract specifications.

Primary risk

Financing changes, margin calls, settlement differences, and venue failure can overwhelm the locked-in spread.

Frequently asked questions

What is cash-and-carry arbitrage?

Cash-and-carry arbitrage buys an asset and sells a related future when the futures premium appears large enough to cover financing and carrying costs. The position is held toward convergence at expiry.

What is the main risk of cash-and-carry arbitrage?

Financing changes, margin calls, settlement differences, and venue failure can overwhelm the locked-in spread.