Carrying Charge

Carrying charge, also known as the cost of carry, refers to the total cost associated with holding or financing a position in a financial asset or physical commodity over a period of time. For futures contracts, the carrying charge explains the difference between the spot price and the futures price — in a normal market (contango), futures trade at a premium to the spot price equal to the cost of carry. The cost of carry for financial assets typically includes the risk-free financing rate (the opportunity cost of capital) minus any income generated by the asset (dividends for stocks, coupon for bonds). For physical commodities, it additionally includes storage costs, insurance, and transportation costs. In Indian equity futures markets, the fair value of a stock future is: Fair Value = Spot Price × e^(r-d)×T, where r is the risk-free rate and d is the expected dividend yield. Elevated carrying charges in the futures market relative to the cash market indicate strong bullish sentiment and speculative long positioning.