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. What does a futures contract cost?

    Learn about values of futures contracts and the initial margin a trader must place in an account to open a futures position, ...
  2. How are double exponential moving averages applied in technical analysis?

    Learn more about double exponential moving averages (DEMAS), and find out how traders commonly use DEMAs in technical analysis ...
  3. What are the goals of covered interest arbitrage?

    Learn the three major goals of covered interest arbitrage and increase your comprehension of the foreign exchange trading ...
  4. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ...
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. Trading Strategies

    IPO Flippers And The Companies Who Hate ...

  2. Fundamental Analysis

    20-Year Treasury Bond ETF Trading Strategies

  3. Technical Indicators

    How To Interpret The Volume Zone Oscillator

  4. Stock Analysis

    Where Does Yahoo (YHOO) Go From Here?

  5. Trading Strategies

    Uncovering Evidence Of Sector Rotation

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!