“Carrying cost” refers to the costs associated with holding a physical good or a financial instrument. Carrying costs may include carrying charges for long positions, short-term interest rates, and insurance and storage costs related to a physical asset.
Learn more about how carrying cost works and the different types.
How does carrying cost work?
Carrying cost has different implications for physical goods compared to owning a stock. For physical goods, carrying cost may include the purchase price and transportation of the goods. Investors may also need to pay storage costs for the goods until their prices rise to a profitable incentive – something that typically does not apply when purchasing a stock.
Carrying cost considerations for individual investors
For most investors, carrying cost may play a role in investment decision-making, whether from the perspective of how much they pay for a good or security, and how this investment compares to another. For physical goods, carrying cost may be more apparent compared to other financial assets like stocks.
Key takeaways
- Carrying cost refers to the various costs associated with owning a physical good or financial instrument.
- Carrying cost includes carrying charges for long positions, short-term interest rates, and insurance and storage costs related to a physical asset.
- Carrying cost has different implications for physical goods compared to owning a stock.
- Carrying cost may be more apparent in physical goods compared to other financial assets like stocks.
Sources
- Commodity Futures Trading Commission. “Glossary: Carrying Charges.” Accessed Nov. 5, 2021.
- Treasury Direct. “The Basics of Treasury Securities.” Accessed Nov. 5, 2021.
- CFTC. “Glossary – Negative Carry.” Accessed Nov. 5, 2021.
- Federal Reserve Bank of Richmond. “Short-Term Interest Rate Futures.” Pages 24-25. Accessed Nov. 5, 2021.
Source: https://www.thebalancemoney.com/what-is-cost-of-carry-5208625
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