What is a covered arbitrage

Covering arbitrage refers to the combination of arbitrage and swap trading. Arbitrageurs transfer funds from place A to Place B to obtain higher interest, while selling forward country B to prevent risks.

Covering arbitrage is a combination of arbitrage and swap. Through this kind of trading, we can not only get the benefit of difference, but also obtain higher interest income, but also pay a swap cost.

Whether covering arbitrage is feasible depends on the comparison between the interest rate difference and the swap cost (annual rate). When the annual rate of swap cost is greater than or equal to the spread, there is no profit.

On the contrary, less than the spread, can carry out arbitrage, profitable.