Carry / Cost of Carry
The net cost of holding a physical commodity position — storage, insurance, and financing minus any income or convenience yield.
Formula
F = S × e^(r + u − y)T (r=financing, u=storage, y=convenience yield, T=time to maturity)
Cost of carry is the total expense of holding a physical commodity from today until the futures delivery date. It includes three components: storage costs (warehousing or tanker fees), insurance, and financing costs (the interest cost of having capital tied up in physical inventory).
In a theoretically efficient market, the futures price equals the spot price plus carry: F = S × e^(r+u-y)T, where r is the risk-free rate, u is the storage cost rate, and y is the convenience yield. When carry dominates, the market is in contango. When convenience yield exceeds carry, the market tips into backwardation.
Carry is not static — it changes with interest rates, storage capacity utilization, and seasonal demand cycles.
Related Terms
Backwardation
A futures market where near-term contracts trade at a premium to deferred contracts, generating positive roll yield and signalling near-term supply tightness.
AdvancedBasis Convergence
The tendency of a futures price and its underlying spot price to meet as expiration nears, forcing the basis to zero at settlement.
IntermediateContango
A market structure where futures prices are higher than the current spot price, creating negative roll yield for long futures holders.
AdvancedConvenience Yield
The implicit benefit of holding physical inventory of a commodity rather than a futures contract — what justifies backwardation.
AdvancedFutures Curve
The graph of futures prices across successive delivery months for a commodity, revealing whether the market is in contango or backwardation.
IntermediateSpot-Futures Basis
The difference between the spot price and a futures price for the same commodity — the numerical expression of carry, storage, and convenience yield.
IntermediateStorage Cost
The fees paid to store a physical commodity — tank rental for crude, vault charges for gold — a key driver of contango in storable markets.
Intermediate