Cost of carry
Also called: carry, futures fair value
The cost of holding the underlying until a futures contract's expiry, mainly interest, minus income such as dividends.
A share future's fair value is roughly the spot price times (1 + interest rate × time), minus dividends expected before expiry. A futures price above spot mostly reflects carry, not a forecast that the price will rise.
Example
At ₹1,000 spot and 7% interest, 30 days of carry is about ₹5.75.
Learn more in these lessons
- Basis, cost of carry and convergenceWhy is a futures price different from the spot price, and why do they meet at expiry?
- Arbitrage basicsWhat is arbitrage, and can it really be risk-free?
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