A:

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.)



RELATED FAQS

  1. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Discover how to spot trading opportunities by looking at year-to-date performance. YTD performance is an effective tool to ...
  2. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Understand how net operating profit after tax gives a clearer view of the operating efficiency of a company in relation to ...
  3. Which is better: dollar cost averaging or value averaging?

    Compare the two investment strategies of dollar cost averaging and value averaging, and learn which one usually generates ...
  4. How are commodity spot prices different than futures prices?

    Find out more about commodity spot and futures prices, how to calculate a commodity's futures price, and the differences ...
RELATED TERMS
  1. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  2. Best To Deliver

    The security that is delivered by the short position holder in ...
  3. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  4. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...

You May Also Like

Related Articles
  1. Chart Advisor

    Stocks Breaking to Downside - Time to ...

  2. Chart Advisor

    3 Ways To Trade The Bounce In Coal

  3. Chart Advisor

    How Investors are Profiting from Cyber ...

  4. Chart Advisor

    Buy These Stocks on The Pullback

  5. Technical Indicators

    Using Bullish Candlestick Patterns To ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!