How Does the ‘Cash-and-Carry’ Arbitrage Strategy Link the Spot and Futures Markets?

Cash-and-carry arbitrage is a market-neutral strategy that exploits price discrepancies between the spot price of an asset and its futures price. A trader simultaneously buys the spot asset and sells a futures contract.

The profit is the difference between the futures price and the spot price, minus the cost of carry. This strategy is key to ensuring the futures price converges with the spot price at expiration.