Cash-And-Carry Trade


DEFINITION of 'Cash-And-Carry Trade'

A trading strategy in which an investor holds a long position in a security or commodity while simultaneously holding a short position in a futures contract on the same security or commodity. In a cash-and-carry trade, the security is held until the contract delivery date, and is used to cover the short position’s obligation.

BREAKING DOWN 'Cash-And-Carry Trade'

By selling a futures contract, the investor has taken a short position, and knows how much will be made on the delivery date and the cost of the security because of the cash-and-carry trade’s long position component. For example, in the case of a bond, the investor receives the coupon payments from the long position plus any investment income earned by investing the coupons, as well as the pre-determined future price at the future delivery date.

Investors use this strategy when the cost of buying a security or commodity today is less than how much the security or commodity can be sold for in the future. The general strategy when seeking to gain arbitrage profits through a cash-and-carry trade has several steps. The investor must first purchase a security or commodity. He or she then sells a futures contract for the security or commodity, and then carries that futures contract until it expires. Upon expiration, the investor delivers the commodity or security.

  1. Reverse Cash-and-Carry-Arbitrage

    A combination of a short position in an asset such as a stock ...
  2. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  3. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Arbitrage-Free Valuation

    1. The theoretical future price of a security or commodity based ...
  6. Pairs Trade

    The strategy of matching a long position with a short position ...
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