Cash-and-carry arbitrage (carry arbitrage) - A basis trade involving a long cash position exactly offset by a short futures position. The holder of the position believes that the futures contract is expensive. He shorts the future, borrows at money market rates to finance a long position in the underlying, and either delivers the asset into the futures contract or waits for a narrowing of the basis and closes out the positions in which case he effectively collects the yield on a synthetic money market instrument. Also called buying the basis. This arbitrage and its opposite, reverse cash-and-carry, ensures an efficient relationship between cash and derivatives markets.
Cash-and-carry arbitrage (carry arbitrage) : a basis trade involving a long cash position exactly offset by a short futures position. the holder of the position believes that the futures contract is expensive. he shorts the future, borrows at money market rates to finance a long position in the underlying, and either delivers the asset into the futures contract or waits for a narrowing of the basis and closes out the positions in which case he effectively collects the yield on a synthetic money market instrument. also called buying the basis. this arbitrage and its opposite, reverse cash-and-carry, ensures an efficient relationship between cash and derivatives markets.
Cash-and-carry arbitrage (carry arbitrage)