What is Cost of Carry?
The Cost of Carry or CoC is the cost of holding a particular asset over a particular period of time (till the futures contract expires). It is the cost that an investor incurs as a result of going ahead with an investment option. These costs include interest costs/expenses as well as storage costs associated with holding physical assets such as commodities.
How is Cost of Carry calculated?
The cost of carry is the difference between the fair price of the future and the spot price
i.e. Cost of Carry = Fair Price of Future – Spot Price
Why use a Cost of Carry Calculator?
Cost of Carry can be used to understand the willingness of traders to pay more money for holding futures. Higher CoC indicates that traders are willing to pay more for holding futures. It can also be used to interpret market sentiment as low CoC means the value of an underlying asset has decreased.
