Basis trading (cash and carry trade)

An arbitrage position typically involving opposite positions in the cash and futures market with the intention of profiting from favourable movements. Arbitrageurs will therefore buy cash and ´carry´ to the futures date for delivery into the futures contract. It is assumed that the cash position is financed in the overnight repo market. By convention, buying the basis is to buy cash bonds and sell futures, and selling the basis is to sell cash bonds and buy futures.