Cash and Carry

The cash and carry strategy is a classic arbitrage trade where a trader buys an asset in the spot market and sells a corresponding futures contract. This locks in the difference between the current spot price and the future price as a guaranteed profit.

The profit is realized when the futures contract expires and the prices converge. It is a low-risk strategy if the trade is held until expiration.

The key is ensuring that the futures premium covers the cost of borrowing and transaction fees. It is widely used by institutional investors in the crypto space to generate yield.

The strategy effectively converts price volatility into a fixed-income return. It relies on the existence of a futures premium or contango.

If the market moves into backwardation, the trade may become unprofitable. Traders must monitor the basis closely throughout the holding period.

It is a fundamental component of market-neutral trading.