What is Carry Cost? A Simple Guide for Indian Traders

Carry cost is the cost of holding a futures position until expiry, mainly the interest on the capital that would otherwise buy the underlying. It is a key reason futures often trade above spot, and it is embedded in the futures basis.

Carry cost explains why futures usually trade a little above the spot price. It is the cost of deferring the purchase of the underlying to a future date.

Understanding carry cost helps you read the basis and roll decisions. Below, we break it down with plain examples and a clear payoff where it helps. You can track futures and spot on Stockk.

Key Takeaways

• Carry cost is the cost of holding a futures position.
• It is mainly interest on the capital involved.
• It is a key reason futures trade above spot.
• It is embedded in the futures basis.
• It shrinks to zero as expiry approaches.

Why does carry cost exist?

Buying the underlying now ties up capital that could earn interest, so a futures contract that defers the purchase reflects this financing cost in its price. Dividends and storage costs also feed into carry. This is why futures typically trade at a premium to spot, a state called contango.

Say a stock trades at ₹500 and the cost of carrying it to expiry, through interest, is ₹3. The futures may trade near ₹503, reflecting that carry cost. As expiry nears, the carry cost shrinks and futures converge to spot.

How carry cost affects traders

Carry cost explains the gap between futures and spot and shapes the cost of holding positions across time. It declines as expiry approaches, since less time remains to finance. Traders factor carry cost into rollover decisions and basis analysis, especially for positions held over longer periods.

What goes into carry cost

Why it matters for rollover

When you roll a position to a later month, the carry cost is part of what you pay in the price difference between contracts. Understanding carry helps you judge whether a rollover is expensive or cheap, and it explains why the basis behaves the way it does through the cycle.

For hands-on futures and options, Stockk is built for Indian traders and backed by Indira Securities. A demat account is free, and there is plenty more in the Knowledge Center.

Futures and Options are leveraged products and carry a high risk of loss that can be more than the money you put in. This article is only for learning and is not a recommendation to trade in derivatives.

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