CASH AND CARRY TRADE

cash and carry trade: translation

See basis trading LIFFE

   An arbitrage position that typically comprises a long cash position together with a short position in its respective futures contract. The trader buys the cash (or physical) commodity, such as coffee, and at the same time sells a futures contract which promises to deliver the same amount of coffee at a future date. This will make him a profit as long as the cash price, plus the cost of storing and insuring the coffee (the cost of carry) until the futures contract falls due, is less than the money received for selling the futures contract. Arbitrageurs buy cash and 'carry' the commodity for delivery later against the future contract. Also known as basis trading or buying the basis.

   ► See also Arbitrage, Basis, Futures.