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Cash-futures arbitrage

Cash-futures arbitrage trades the mispricing between the equity cash market and the futures contract.

A common trade buys cash stock and sells futures when futures are rich to fair value.

The reverse trade applies when futures are cheap relative to cash, subject to shorting constraints.

Execution quality, STT, margins, and corporate actions affect whether the arb remains profitable.

Institutional desks and prop desks are the main participants in Indian cash-futures arb.

Part of the Market Pulse Term of the Day series — factual market vocabulary, not investment advice.