Future and Cash Arbitrage

What is the difference between cash and future arbitrage?

The cash and future arbitrage is a strategy which often offer risk free return at rates better than savings accounts deposits and most other risk free liquid asset classes.
The future price of any security, for the index, is a combination of two factors,; the cash price of the asset the cost of carry for the period remaining to expiry of the future instruments.
The one month future price of TCS industries =cash price of the TCS stock +the cost of carry for a period of 1 month.
Cash and future arbitrage

When future price higher than the cash price.

At expiry the future price closes at the cash price of the security or index. If the future price of TCS is higher than its cash price, you can buy the TCS stock and sell a similar quantity of TCS future. This will allow you to on the cost of carry of the TCS future.

When cash price higher than the future price.

If future price been lower than the cash price, generally in the over sold market.this may be due to the fact that the Indian market is cash-settled and not delivery settled so the future price is more or reflection of settlement rather than that of the financing cost.


 Cash and futures arbitrage is the best part to learn the future markets.

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