How do I employ a cash-and-carry trade?

By Bob Schneider AAA
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 are the main differences between Money Flow & Money Flow Index (MFI)?

    Find out how to differentiate between standard money flow and the Money Flow Index, two methods of expressing the strength ...
  2. What are the best technical indicators to complement the Parabolic Indicator?

    Learn about two of the best technical indicators recommended for traders to use to refine a trading strategy based on the ...
  3. What is the Double Exponential Moving Average (DEMA) formula and how is it calculated?

    Discover the equation for double exponential moving average, or DEMA, and learn how it is calculated for a better understanding ...
  4. How do I use Mass Index for creating a forex trading strategy?

    Discover how forex traders can use Donald Dorsey's mass index to spot possible reversals in the price action trends of currency ...
RELATED TERMS
  1. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  2. Mass Index

    A form of technical analysis that looks at the range between ...
  3. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  4. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
  5. Negative Volume Index - NVI

    A technical indicator that relies on changes in a security’s ...
  6. Accumulation/Distribution

    An indicator that tracks the relationship between volume and ...

You May Also Like

Related Articles
  1. Options & Futures

    Futures Quotes Explained The "Easy" ...

  2. Forex Strategies

    How to Build A Forex Trading Model

  3. Trading Systems & Software

    The Best Technical Analysis Trading ...

  4. Trading Strategies

    Is the Stock Correlation Strategy Effective?

  5. Trading Strategies

    Not All Online Trading Brokers Are Created ...

Trading Center