Frequently Asked Question
How do I employ a cash-and-carry trade?
The cash-and-carry trade is an arbitrage strategy of purchasing one security while simultaneously selling a similar security. This trade is typically employed by taking a long and short position strategy, in which the long cash position is taken with a short position, like the sale of a futures contract. This strategy is most effective when the cost of purchasing the security plus the cost of carry are less than the returns on the sale of a similar security, usually futures contract. The strategy, also known as "basis trading," can profit this way when the trader believes the securities are mispriced in a way that can produce a profit by employing the cash-and-carry trade.
(For more on cash and carry trading, read Get Positive Results With Negative Basis Trading.)
(For more on cash and carry trading, read Get Positive Results With Negative Basis Trading.)
by
Bob Schneider
Bob Schneider worked in the equity research department of Morgan Stanley for six years, including three years as supervisory analyst and senior editor of the company's Tokyo office. He has written hundreds of articles on business and computer topics, including XBRL, Japanese equities, fundamental research and accounting basics. Schneider is the author of "Hands-On Microsoft Access" (2006), an intermediate guide to the database management program. He holds Series 16 (supervisory analyst) and Series 65 (investment advisor) licenses. He is a CPA (inactive) in the State of New York and a graduate of Columbia University Business School.
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