Cash-and-carry basis trades
A cash-and-carry trade typically buys spot and shorts a richer futures contract to target convergence. The quoted basis is not the final return after financing, fees, collateral, execution, and counterparty risk.
In this guide
Basis and convergence
Futures can trade above or below spot because of funding conditions, demand, and market frictions. A dated contract has a known settlement mechanism that can anchor convergence.
Annualizing a short-lived basis can exaggerate attractiveness if the trade cannot be repeated under similar conditions.
Implementation risks
The spot and futures legs may trade on different venues or collateral systems. Transfers, borrow availability, margin calls, and settlement specifications matter.
Use executable bid and ask prices, not midpoints, and model the full holding-period cost.
Frequently asked questions
Is positive basis free yield?⌄
No. It compensates for financing, execution, operational, and counterparty risks.
Does the hedge remove every price risk?⌄
No. Basis, mark-price, settlement, and leg mismatch can remain.
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