What Is the Cost of Carry?
The cost of carry or carrying charge is the cost of holding a security or a physical commodity over some time. The carrying charge includes insurance, storage, interest on the invested funds, and other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the device.
Understanding Cost of Carry
It can come in many forms, including interest on margins, the loans used to trade, or the cost of storage and insurance associated with holding a commodity.
In forex, several costs can arise from keeping a position open.
Changes in interest rates can require a charge on your account, or overnight funding charges can be incurred.
Often, the cost of carry will already be included in the price of opening a new position.
The cost of carry of a position varies depending on the type of trade and asset being traded.