Cost of Carry
Cost of carry is the net cost of holding an asset until a future date: financing, storage and insurance, minus any income such as dividends or interest. In theory, a futures price equals the spot price plus the cost of carry.
Cost of carry is what it costs to hold an asset until a future date. Storage, insurance and financing push the cost up, while income such as dividends or interest pulls it down. It is the main link between spot prices and futures prices.
- Category
- Derivatives
- Reading time
- 4 min
- Also called
- Carrying charge, Carry cost, Net cost of carry
- Updated
Cost of carry in plain words
Carrying charges are what it costs to hold a commodity in storage or keep a financial position open over time.1
They include storage, insurance, interest on the money tied up, and smaller incidental costs.1
In theory, the futures price equals spot plus carry, so if carry rises, later futures tend to rise with it.
How to estimate cost of carry
Start with spot
Note the current cash price of the asset.
Add financing
Multiply the price by the Interest Rate for the holding period.
Add storage and insurance
Add up storage, insurance, financing and any other holding costs.1
Subtract income
Take away dividends, coupons or lending income earned while holding.
Get fair value
Spot plus net carry gives a theoretical futures price.
Compare with the market
If each later futures contract is priced higher than the one before, the market is pricing in carry.1
Worked examples
Example 1 — Commodity fair value
Fair value $2,090Hypothetical spot gold $2,000, financing 4% a year, storage and insurance 0.5% a year, held 1 year.
| Financing | $2,000 × 4% = $80 |
| Storage and insurance | $2,000 × 0.5% = $10 |
| Fair futures | $2,000 + $90 = $2,090 |
Storage, insurance and financing together make up the carry.1
Example 2 — Income lowers carry
Fair value 1,030A hypothetical index at 1,000 with 5% financing and a 2% dividend yield, held 1 year.
| Financing | 1,000 × 5% = 50 |
| Dividends | 1,000 × 2% = 20 |
| Fair futures | 1,000 + 50 − 20 = 1,030 |
Net carry is the cost of holding the position minus any income it pays you along the way.1
Example 3 — Cash-and-carry
$4 locked inHypothetical oil spot $60, one-year futures $72, total carry $8.
| Buy spot and carry | $60 + $8 = $68 |
| Sell futures | $72 |
| Locked profit | $72 − $68 = $4 |
Buying spot, selling a later futures contract and storing the oil — even on a chartered tanker — can lock in a known return.2
Cost of carry vs basis
| Aspect | Cost of carry | Basis |
|---|---|---|
| What it is | Cost to hold an asset | Gap between cash and futures |
| Main inputs | Financing, storage, insurance, income | Local supply and demand |
| Sign | Usually positive | Often negative (cash minus futures) |
| Use | Fair value of futures | Hedging local prices |
Where carry matters
Pricing futures
Fair value checks for Futures Contract on indices and commodities.
Arbitrage
Cash-and-carry trades when futures look rich versus Spot Trading.
Crypto basis trades
Compare dated futures premiums with borrowing costs and Funding Rate.
Storage decisions
Holders compare carry with the futures curve spread.
Advantages and disadvantages
Advantages
- Explains why futures differ from spot.
- Gives a fair-value benchmark.
- Shows when arbitrage may be possible.
- Works across commodities, indices and currencies.
Disadvantages
- Real storage and financing costs vary by trader.
- Some assets cannot easily be stored or shorted.
- Income such as dividends can change.
- Fair value ignores supply shocks.
Going deeper
Read as far as you need. Each level builds on the one before it.
The carry pieces
Beginner
Carry is simply the cost of holding something over time.1 For financial assets, financing is usually the biggest piece.
Full carry markets
Intermediate
When the price gap between contracts fully covers the holding costs, the market is said to be at “full carry”.1 Futures trading near full carry suggest ample supply.
Common mistakes
Forgetting income
Dividends or coupons reduce net carry.
Using the wrong rate
Your own borrowing rate may be above the benchmark rate.
Ignoring storage limits
Physical arbitrage needs space and logistics.
Mixing up carry and basis
Carry is a cost; basis is a price gap.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Cost of carry is the net cost of holding an asset.
- Financing, storage and insurance add to it.
- Income such as dividends subtracts from it.
- Fair futures value equals spot plus net carry.
- Large gaps from fair value can create arbitrage.
Frequently asked questions
Can cost of carry be negative?
Is cost of carry the same as roll yield?
Does cost of carry apply to crypto?
Further learning
- Interest Rate
The main driver of financing cost.
- SOFR
A common benchmark for financing costs.
- Margin
Collateral that adds to the cost of holding futures.
- Futures Contract
The contracts priced off carry.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CFTC. CFTC Glossary (opens in a new tab) Checked .
- U.S. Energy Information Administration. High inventories help push crude oil prices to lowest levels in 13 years (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.