What Is “Implied Repo Rate” and How Is It Used in Arbitrage Analysis?

The implied repo rate is the interest rate derived from the current spot price, futures price, and time to expiration, essentially representing the return on the cash and carry arbitrage trade. Arbitrageurs use it to determine if the arbitrage opportunity is profitable.

If the implied repo rate is higher than their cost of funding, the trade is profitable; if lower, it is not worth executing.