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's a good forex strategy to use when spotting a Wedge-shaped Pattern?

    Find out more about the rising and falling wedge formations and how to implement a forex strategy when you spot these patterns ...
  2. How do I perform a financial analysis using Excel?

    Find out how to perform financial analysis through Microsoft Excel, which is probably the most widely used software among ...
  3. How do I use Trade Volume Index (TVI) to create a forex trading strategy?

    Find out about the trade volume index, what it indicates about a security and how to build a forex strategy using the trade ...
  4. Why is the Trade Volume Index (TVI) important for traders and analysts?

    Find out more about the trade volume index, what the indicator measures and why it is important to traders and analysts.
RELATED TERMS
  1. Exchange Traded Derivative

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

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

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

    A technical indicator that combines aspects of candlestick analysis ...
  5. Credit Card Arbitrage

    Borrowing money at a low interest rate from a credit card then ...
  6. Forex Spread Betting

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

You May Also Like

Related Articles
  1. Technical Indicators

    Will These High-Flying Stocks Stay Hot ...

  2. Chart Advisor

    These REITs Are Looking Good Right Now

  3. Chart Advisor

    Commodity Traders are Watching These ...

  4. Trading Strategies

    Analyzing The Market With Trend Mirrors

  5. Technical Indicators

    Reading Trends With Moving Average Ribbons

Trading Center