What Are the Main Risks Associated with a ‘Cash and Carry’ Arbitrage Strategy in Crypto?

The main risks are basis risk, counterparty risk, and liquidation risk. Basis risk is the chance that the basis does not converge to the expected value or time.

Counterparty risk is the risk of the exchange or broker defaulting. Liquidation risk arises if the short futures position is over-leveraged and the spot price rises sharply, leading to a margin call and liquidation before the convergence can occur.