Cost of carry

The sum of what it costs to hold a position or an asset for a period, less whatever the holding pays over the same period. For a physical commodity that means financing, warehousing and insurance against a convenience yield, the value of having the material to hand. For a security it means financing against dividends or coupons. For a currency position it is the interest received on one side against the interest paid on the other.

It reaches a trader through three different doors. On a futures curve it appears as the shape between delivery months, which is what puts a curve into contango or backwardation. On a contract held overnight it appears as the swap or financing adjustment credited or debited each night. On a rolled instrument it appears as the difference paid when one delivery month is exchanged for the next.

Carry is a cost of time, which is exactly why it is easy to overlook: it is invisible over a day and material over months, and it accrues whether the position is right or wrong. Two further points are commonly missed. Carry can be a credit rather than a cost, when the income side exceeds the financing side. And the figure that reaches an account is the market's carry after the provider's own adjustment, so a positive market differential does not necessarily produce a positive entry.