Cost of carry

The cost of carry represents the total expense incurred when holding a financial or commodity asset over time. It typically includes storage charges, financing costs (such as interest on borrowed funds), insurance, and any other fees associated with maintaining the position. In markets where physical goods are traded—such as metals, agricultural products, or energy—the cost of carry is a key factor influencing forward pricing and the shape of the futures curve. Theoretical pricing models often express forward price as the spot price plus the cost of carry, adjusted for any benefits of holding the asset, such as convenience yield. Traders use cost-of-carry calculations when evaluating arbitrage opportunities between spot and futures markets, or when assessing whether storing a commodity is economically viable. In financial markets, cost of carry applies to assets such as equities or currencies, where dividends or interest differentials also influence pricing. A thorough understanding of cost structures allows market participants to value forward contracts, hedge exposures accurately, and interpret curve movements in response to supply–demand dynamics, interest rate changes, or shifts in storage availability. Cost of carry serves as a foundational concept in price discovery and risk management across both physical and financial markets.