Cash-and-Carry Arbitrage in Australia: 2025 Guide & Strategies

Arbitrage may sound like a word reserved for high-flying hedge funds, but cash-and-carry arbitrage is a strategy that’s accessible—and increasingly relevant—for savvy Australian investors. As financial markets evolve in 2025, price gaps between spot and futures markets are creating new opportunities, but also new risks. Here’s how cash-and-carry arbitrage works, what’s changed this year, and how you can think about it as part of a modern investment approach.

What Is Cash-and-Carry Arbitrage?

At its core, cash-and-carry arbitrage is about exploiting price differences between two markets: the current (spot) price of an asset and its future price (in the futures market). Here’s the classic process:

• Buy the asset now in the spot market (the ‘cash’ part).

• Sell a futures contract for the same asset, locking in the future price (the ‘carry’).

• Hold the asset until the futures contract matures, then deliver the asset and pocket the difference—minus costs like storage, funding, and transaction fees.

For example, if gold is trading at $3,000 per ounce on the spot market and a three-month futures contract trades at $3,050, an arbitrageur can buy gold now, sell the futures, and profit if the cost of carry is less than $50 per ounce.

Cash-and-Carry in Australia: 2025 Trends and Regulatory Updates

Australia’s financial markets have seen a surge in cash-and-carry activity, especially in commodities (like gold and wheat) and cryptocurrencies. Several recent developments are shaping the landscape:

• ASX Expansion: The Australian Securities Exchange (ASX) has broadened its derivatives offerings in 2025, including more futures products tied to local equities and commodities. This has increased arbitrage opportunities for retail and institutional traders alike.

• RBA Policy Shift: The Reserve Bank of Australia’s recent interest rate adjustments have changed the cost of carry calculations. Higher rates mean higher financing costs, impacting the profitability of many arbitrage trades.

• Crypto Futures Regulation: ASIC’s 2025 tightening of crypto derivatives regulation has introduced stricter margin requirements. This makes cash-and-carry trades in Bitcoin and Ethereum futures more capital-intensive, but still attractive when volatility creates wide spreads.

These policy shifts mean that while the mechanics of cash-and-carry remain the same, the math and risks involved have evolved. Investors now need to be sharper with their calculations and more attentive to compliance.

Real-World Examples and Practical Considerations

Let’s bring the strategy to life with a contemporary example:

Suppose you spot a price gap in the ASX-listed BHP shares:

• BHP spot price: $45.00

• BHP June futures price: $45.80

• Interest rates: 4.5% p.a.

• Time to expiry: 3 months

• Transaction and holding costs: $0.25 per share

Calculating the cost of carry (interest + costs), you find it totals about $0.35 per share for three months. The spread ($0.80) is more than double your cost, so the arbitrage is profitable. You buy BHP shares, sell the futures contract, and lock in the gain, provided prices converge by expiry.

But this only works if:

• There’s enough liquidity to enter and exit positions without slippage.

• You can fund the trade (margin or cash) at reasonable rates.

• Market regulations (like ASX’s 2025 position limits) don’t restrict your strategy.

Another hot area is crypto. In early 2025, Australian exchanges often see Bitcoin futures trading at a premium to spot. For example, if spot BTC is $100,000 and a one-month futures contract is at $102,000, traders can buy BTC, sell the future, and earn the $2,000 spread—less fees and interest. However, with ASIC’s stricter rules, you’ll need more upfront capital to play.

Risks, Rewards, and the Future of Arbitrage Down Under

While cash-and-carry arbitrage can offer low-risk returns when executed well, it’s not without hazards:

• Execution risk: Rapid price moves or illiquid markets can erode profits or even cause losses.

• Financing risk: Rising interest rates in 2025 mean higher costs to fund positions, sometimes wiping out the spread.

• Regulatory risk: Ongoing changes by ASIC and the ASX can alter or restrict market access, especially in derivatives and crypto.

Yet, as technology advances and more Australians get access to sophisticated trading platforms, expect cash-and-carry strategies to remain relevant. The key is to stay up to date with policy shifts, understand your true costs, and move quickly when opportunity knocks.