Crypto Cash-and-Carry Arbitrage Across Spot, Futures, and Perpetuals
Summary
The document explains cash-and-carry trades that pair a spot position with an equal and opposite futures position. In contango, the trader buys spot and shorts a higher-priced future, aiming to capture the price spread as it narrows toward settlement; backwardation may favor the reverse structure. It also describes rolling a futures position into a later contract. For perpetual swaps, traders may seek spread convergence and funding payments, with positive funding generally paid by longs to shorts and negative funding flowing the other way.
A Bitcoin example illustrates that the initial futures premium can produce the same stated net result across rising, falling, or unchanged settlement prices, assuming the paired positions are held to settlement. The guide cautions that perpetual spreads lack a fixed convergence date, capital may remain tied up, and futures leverage can create liquidation risk despite the hedge. Fees and one-sided execution can also erode returns. Its worked examples omit detailed fee, margin, basis, and operational analysis, so the strategy is not risk-free in practice.
Key ideas
- A cash-and-carry trade pairs a spot holding with an equal-sized short futures position to reduce directional exposure.
- In contango, the trader seeks to capture the futures premium as it converges toward spot at settlement.
- Perpetual swap versions can earn or pay funding depending on the price basis and funding sign.
- A futures position can be rolled to a later expiry, while perpetual positions have no fixed settlement date.
- Leverage, liquidation, capital lockup, trading fees, and leg execution risk can reduce or eliminate returns.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.