Lucas O’Neil#97

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What is arbitrage trading between spot and futures in forex?

Spot-futures arbitrage exploits price differences between spot forex and currency futures. If futures trade above spot (contango), arbitrageurs may short futures and go long spot. If below (backwardation), they reverse. Institutions use arbitrage to lock risk-free profits, aided by speed and capital. Retail traders may attempt it but face execution lags and margin complexity. Benefits: profits with limited directional risk. Risks: transaction costs, model errors, and fleeting opportunities. Spot-futures arbitrage reflects how interconnected forex instruments keep markets efficient—imbalances vanish quickly as arbitrage aligns prices.