How Cash-and-Carry Works in Crypto Trading: An Alternative to Traditional Investing

Most traders focus on trying to predict market direction, forgetting about strategies that don’t depend on trends. One of them is cash-and-carry, which allows you to profit from price discrepancies between the spot market and futures. But this isn’t the only way to earn regardless of cryptocurrency price movements.

Interest Rate Arbitrage: Carry Trade in Practice

Carry trade is a classic tool borrowed from traditional finance. Its essence is simple: a participant borrows at a low interest rate and invests the funds where the rate is higher. Profit is generated from the difference between the borrowing cost and the income from the deposit.

Let’s consider a specific example. In American banks, current rates are around 5% annually. At the same time, on several crypto platforms, staking stablecoins or cryptocurrencies can yield up to 18% annually. This means that if you take a bank loan at 5%, deposit the funds into USDT or USDC on a crypto platform, the difference is about 13% — pure trader profit.

A logical question arises: why choose stablecoins instead of volatile assets? The answer is simple — stablecoins are pegged to the dollar, eliminating price risk. Investing in regular cryptocurrencies, the asset can crash in value and completely wipe out the interest income.

Cash-and-Carry: Strategy in Action

Cash-and-carry is another approach to arbitrage. It involves simultaneously opening a long position (buying) in a crypto asset and a short position (selling) in its futures. The key condition is that prices on the spot market and in the futures contract should differ.

For example, you buy 1 BTC on the spot market at $65,000 and simultaneously sell a futures contract for the same BTC at $66,000. After holding the position until the futures contract expires, you sell the BTC at the futures price and lock in a profit of $1,000. The difference between the prices is your earnings.

Other instruments like options can also be used, providing greater flexibility in strategy selection.

Which to Choose: Comparing the Two Approaches

At first glance, both strategies seem similar, but they operate quite differently. Carry trade exploits the interest rate spread between sources of financing (banks) and investment venues (crypto platforms). Cash-and-carry exploits price differences between an asset and its derivatives.

In practice, choosing between them depends on several factors. Cash-and-carry requires deep understanding of the futures market and constant monitoring. Also, price discrepancies are often small, resulting in modest profits even under ideal conditions. Additionally, holding crypto assets or maintaining a futures account incurs extra fees, which often eat into the entire profit.

On the other hand, carry trade is more accessible — you can always find fiat currency with a low rate and a crypto platform offering attractive yields. However, the main risk lies in the reliability of the platform itself. Attractive interest rates on the site do not guarantee the platform will fulfill its obligations.

In traditional finance, carry trade is actively used by banks and large investors due to immediate access to information and substantial capital. Retail traders are in less favorable conditions.

Practical Recommendations and Risk Factors

Both strategies require constant monitoring of economic conditions in different countries and on individual crypto platforms. Market conditions change unpredictably — what worked yesterday may become unprofitable today. Interest rates rise or fall, and price discrepancies narrow or widen.

Cash-and-carry, although less profitable, is considered safer due to the use of regulated futures markets and options. Carry trade can yield higher returns but requires particular caution when choosing a platform.

The main takeaway: no strategy guarantees profit without risks. The choice depends on your experience, available capital, and willingness to continuously analyze the market.

This material is for educational purposes only and does not constitute investment advice. Always conduct your own research before making financial decisions. The editorial opinion may differ from that of analytical platforms and experts.