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 is the difference between arbitrage and speculation?

    Arbitrage and speculation are very different strategies. Arbitrage involves the simultaneous buying and selling of an asset ...
  2. What's the best way to play backwardation in the futures market?

    Backwardation is a market condition in which a futures contract far from its delivery date is trading at a lower price than ...
  3. What are the best indicators for evaluating technology stocks?

    Technology stocks are often some of the most discussed stocks on the news. How can investors spot the company that will roll ...
  4. What technical indicators can I use to find undervalued stock?

    Investors seeking new ideas may want to look to technical analysis to see whether the market has undervalued a particular ...
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 ...
comments powered by Disqus
Related Articles
  1. Playing Penny Stock-Like ETFs
    Stock Analysis

    Playing Penny Stock-Like ETFs

  2. Hypothesis Testing in Finance: Concept ...
    Active Trading Fundamentals

    Hypothesis Testing in Finance: Concept ...

  3. Technical Top-Down Investing: Analyzing ...
    Retirement

    Technical Top-Down Investing: Analyzing ...

  4. Using the Coppock Curve to Generate ...
    Technical Indicators

    Using the Coppock Curve to Generate ...

  5. Trading Without Noise
    Active Trading

    Trading Without Noise

Trading Center