The Bitcoin cash and carry trade—also known as basis trading—is a powerful, market-neutral strategy that allows traders to generate consistent returns regardless of whether the price of Bitcoin rises or falls. By leveraging pricing inefficiencies between the spot and futures markets, this low-risk arbitrage approach has become increasingly popular among both retail and institutional investors. In this guide, we’ll break down how the strategy works, walk through real-world examples, and highlight key considerations for successful execution.
Understanding Cash and Carry Arbitrage
Cash and carry arbitrage involves simultaneously buying Bitcoin in the spot market and selling an equivalent amount via a futures contract. The goal is to profit from the price difference—known as the basis or premium—between these two markets.
This strategy thrives on a simple truth: futures prices converge with spot prices at expiration. Whether Bitcoin is in a bull or bear market, this convergence guarantees that any initial premium will eventually shrink to zero, locking in a profit if the trade is structured correctly.
When futures trade above spot prices, the market is in contango—a common scenario during bullish sentiment. Conversely, when futures trade below spot, it’s called backwardation, often seen in bearish or uncertain conditions. The cash and carry trade is most profitable in contango environments.
👉 Discover how to identify high-conviction trading opportunities with real-time market data.
How the Cash and Carry Trade Generates Profit
The mechanics behind this strategy are rooted in financial convergence. While we can’t predict where Bitcoin’s price will be at expiration, we can predict that the gap between futures and spot prices will close.
For example, if the September futures contract trades at a 9% premium to spot, that premium will steadily decline as expiration approaches—even dropping negative at times, as occurred on April 18, 2021, when Binance’s BTCU2021 contract briefly traded at a -2.8% premium. Traders who spotted this anomaly could have closed their positions early and captured profits 159 days ahead of expiry.
Because this strategy is market-neutral, profits aren’t dependent on price direction. Instead, they’re derived purely from the decay of the futures premium.
A Practical Example: Cash and Carry on Binance
Let’s assume the following market conditions:
- Bitcoin spot price: $55,535
- September futures price: $61,204
- Premium: $5,669 (≈9.2%)
You execute the cash and carry trade by:
- Buying 1 BTC on the spot market for $55,535
- Selling 1 BTC via the September futures contract at $61,204
Now let’s explore two potential outcomes at expiry.
Scenario 1: Bitcoin Rises to $79,000
- Your long spot position gains value: 1 BTC = $79,000
- Your short futures position incurs a loss: You owe 1 BTC but only hold 1 from spot
- Net BTC balance: 1 (spot) – 1 (futures obligation) = 0 BTC? Not quite.
Wait—because you used no leverage and held collateral, your futures position settles in cash (on most exchanges like Binance). You profit from the difference in prices.
Your realized gain is the initial premium: $61,204 – $55,535 = $5,669
Even if BTC surges, your net profit remains fixed at expiry.
Scenario 2: Bitcoin Drops to $45,000
- Spot position loses value: 1 BTC = $45,000
- Futures position profits: You deliver BTC bought at $55,535 but sold at $61,204
- Again, settlement is cash-based: You receive the $5,669 difference
Result: Same profit—$5,669—regardless of price movement.
This demonstrates the core strength of cash and carry: predictable returns with minimal exposure to volatility.
Step-by-Step Execution on Binance
To replicate this strategy:
- Buy Bitcoin on the Spot Market
- Transfer BTC from your Spot to Futures account
- Open a short position on a quarterly futures contract
- Hold until expiry—or close early if the premium collapses
- Transfer remaining BTC back to Spot wallet
- Sell BTC (if desired) and realize profits
👉 Access advanced futures trading tools with deep liquidity and low fees.
Active vs. Passive Trading Approaches
Traders can adopt either a passive or active style when executing cash and carry trades.
Passive Strategy
- Open a position once every quarter or six months
- Hold until expiry without monitoring
- Ideal for hands-off investors seeking steady returns
This method minimizes time commitment and emotional decision-making, making it perfect for long-term wealth accumulation.
Active Strategy
- Monitor market conditions, technical charts, and macro fundamentals
- Enter/exit based on optimal premium levels or market cycles
- Potential for higher returns by timing entries and exits
While more demanding, active trading allows you to capitalize on extreme premiums or early convergence events—like the -2.8% drop in 2021.
Rolling Forward vs. Closing Out
Instead of closing your position and converting to fiat, consider rolling forward into the next futures contract.
Benefits of Rolling:
- Avoid repeated spot trading fees
- Maintain exposure without liquidation risk
- Take advantage of new premiums on longer-dated contracts
For instance, if the October futures contract offers a 7% premium right after September expires, simply reopen your short—no need to sell spot BTC.
However, if the next contract’s premium is too low (e.g., <3%), it may not justify the carry cost. In such cases, closing out fully is wiser.
Key Risks to Consider
Despite its low-risk profile, cash and carry isn’t risk-free. Be aware of the following:
1. Exchange Risk
The biggest threat is platform reliability. If your exchange gets hacked or collapses, your funds could be lost. Always use reputable platforms with strong security practices and transparent operations.
2. Stablecoin Risk
Most traders use stablecoins (e.g., USDT, USDC) to buy Bitcoin. But these are issued by private entities and may lack full reserves. A depegging event could disrupt funding flows or trigger margin calls.
3. Liquidation Risk
Using leverage—even 2x—introduces liquidation risk. A 50% adverse move could wipe out your position. Since cash and carry already offers solid returns without leverage, it's best to avoid it entirely.
4. Operational Errors
Simple mistakes—like misplacing an order or transferring funds incorrectly—can be costly. Always double-check every step before execution.
Frequently Asked Questions (FAQ)
Q: Is cash and carry trading profitable in a bear market?
A: Yes. Since profits come from the futures premium converging to zero—not price direction—the strategy works in any market condition.
Q: How often should I roll my futures position?
A: Typically every quarter, aligning with quarterly contract expiries. Roll only if the next contract offers a sufficient premium.
Q: Can I automate this strategy?
A: Yes. With APIs and bots (e.g., via TradingView alerts), you can automate entry and exit based on premium thresholds.
Q: What happens if the futures premium turns negative?
A: You can close early and lock in profits immediately. A negative premium means you’d pay less to buy back your short than you initially received.
Q: Do I need leverage for cash and carry?
A: No. The strategy is most effective with 1x (no leverage), reducing risk while preserving returns.
Q: Which exchanges support this strategy best?
A: Look for platforms with deep futures liquidity, low fees, and seamless spot-to-futures transfers—critical for efficient execution.
👉 Start executing precise trades with a platform built for advanced strategies.
Core Keywords:
Bitcoin cash and carry trade, basis trading, futures arbitrage, contango trading, market-neutral strategy, Bitcoin spot vs futures, crypto arbitrage, low-risk crypto trading
By combining disciplined execution with risk awareness, the Bitcoin cash and carry trade offers a compelling path to consistent returns in volatile markets.