We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Cash and Carry Trade?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The cash and carry trade is a type of arbitrage strategy that involves two trade components in order to complete the transaction. Essentially, a security will be purchased, and the asset underlying the security is sold at a short trade. In other instances, a cash and carry trade will involve the purchase of a security and the subsequent sale of a similar security.

Cash and carry trades are sometimes referred to as trading on the basis or basis trading. It is not unusual for the transaction to involve futures as the component that is sold after a similar security is purchased. The components involved in the strategy can be a stock, a commodity or an index as the security that is purchased, while a futures contract will often be the component utilized for the sale that completes the arbitrage approach.

One of the ideas behind the cash and carry trade is to deal with situations where the investor feels there is there is a discrepancy between the prices of the two securities involved. Essentially, the acquisition of one security and the subsequent sale of the other security is anticipated to balance out the discrepancy. By realizing a gain on one component that is sufficient to offset the loss on the other component, the investor manages to achieve a state that he or she feels is more equitable.

In order to obtain the desired result, the cash and carry strategy will work if the purchase price of the security, along with the addition of the associated cost of carry, will need to be less than the price on the futures contract. When this sort of situation exists, the cash and carry trade can result in a desirable return on the strategy. However, if the combination of the cost of carry and the price of the acquired security exceeds the price of the futures, then the strategy will fail. If there is not a desirable security available at a price that will allow for the successful implementation of a cash and carry trade, the investor would be well advised to consider other strategies in order to strengthen his or her position.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.