An arbitrage technique that involves trading between the futures and spot markets by buying the underlying of a futures contract in the spot market (the cash leg) and holding [the carrying leg] it for a specific term (arbitrage term). The arbitrage technique consists of three basic steps: 1) buying (going long) the underlying asset 2) going short the futures contract on the underlying asset and 3) delivering on the futures contract with the underlying asset.

A cash-and-carry arbitrage is a combination of a long position in an underlying asset and a short position in a futures contract. An arbitrageur gains (locks in) a rate of return on a cash and carry arbitrage known as the implied repo rate. For an arbitrage to pay off, the implied repo rate has to exceed the cost of borrowing. The implied rate of return constitutes the difference between the spot price of the underlying asset and the price to be paid on delivering into the contract in the future. For example, the underlying asset may be a bond: an arbitrage is constructed by the sale of a bond futures contract together with the purchase of a deliverable bond.

An arbitrage opportunity forms if this implied rate is larger than the current market interest rate (borrowing rate) for the term of the futures contract.