What Are the Risks Involved in Cash-and-Carry Arbitrage in Cryptocurrency Markets?

Cash-and-carry arbitrage in cryptocurrency markets, while often considered low-risk, still has several potential pitfalls. Execution risk is a primary concern, where the prices of the spot and futures legs of the trade can change before both can be executed.

Counterparty risk is also significant; the exchange holding the assets or the futures position could be hacked or go bankrupt. There is also the risk of liquidation if the futures position is margined and the price moves sharply against it, even temporarily.

Finally, basis risk can erode profits if the spread between the spot and futures price narrows unexpectedly before the contract expires.