Cash and Carry Trade

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Cash and Carry Trade

A transaction in which one takes a short position on a futures contract and a long position on the underlying asset where the spot price, or current price, of the underlying commodity is below the price in the futures contract. Making a profit from a cash and carry trade is considered a form of arbitrage. That is, one uses a cash and carry trade to make money from uncertainty or inefficiency in the market, in this case, with regard to the future price of the underlying asset. This is also called buying the basis.