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Cost of Carry Formula:
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Cost of Carry represents the net cost associated with holding or carrying an asset over time, including storage costs, insurance, financing costs, and any income generated from the asset. It's a key concept in futures pricing and arbitrage strategies.
The calculator uses the Cost of Carry formula:
Where:
Explanation: The formula calculates the annualized percentage cost of carrying an asset from spot to future date, considering the price difference and time period.
Details: Cost of Carry is crucial for understanding futures pricing, identifying arbitrage opportunities, managing inventory costs, and making informed investment decisions in commodity and financial markets.
Tips: Enter future price and spot price in the same currency units, and time period in days. All values must be positive numbers (prices > 0, days ≥ 1).
Q1: What does a positive Cost of Carry indicate?
A: A positive Cost of Carry indicates that futures prices are higher than spot prices (contango), reflecting the costs of holding the asset.
Q2: What does a negative Cost of Carry indicate?
A: A negative Cost of Carry indicates that futures prices are lower than spot prices (backwardation), which may occur when there are benefits to holding the physical asset.
Q3: Why use 360 days instead of 365?
A: The 360-day convention is commonly used in financial calculations for simplicity and consistency across various financial instruments and markets.
Q4: How does Cost of Carry relate to interest rates?
A: For financial assets, Cost of Carry often includes the interest rate component, representing the opportunity cost of invested capital.
Q5: Can this calculator be used for all types of assets?
A: While the basic formula applies broadly, specific assets may have additional carrying cost components that should be considered for comprehensive analysis.