What Is the Risk Involved in a Basis Arbitrage Strategy?

The primary risk in a basis arbitrage strategy, such as a cash and carry trade, is liquidation risk. If the futures price moves sharply against the hedged position, the margin for the futures leg may be depleted, leading to liquidation and the trade being prematurely closed at a loss.

Other risks include counterparty risk on the spot exchange, transaction costs eroding profits, and the risk that the funding rate may become negative for a prolonged period.