In the futures market, "full carry" refers to the total cost of holding a position in a futures contract, including interest costs, storage costs, and any other associated costs. This is in contrast to "net carry", which only includes interest costs.
For example, if you are long a futures contract for wheat, the full carry costs would include the interest costs to carry the position, the storage costs for the wheat, and any other associated costs. The net carry costs would only include the interest costs.
What is full carry?
A full carry trade is an investment strategy that involves simultaneously buying and selling a financial instrument in order to profit from the interest rate differential between the two instruments. For example, an investor might buy a 10-year Treasury note and sell a 2-year Treasury note. If the interest rate on the 10-year note is higher than the interest rate on the 2-year note, the investor will earn a profit from the interest rate differential.
The full carry trade is a popular investment strategy among hedge funds and other institutional investors. It is often used to speculate on the direction of interest rates. For example, if an investor believes that interest rates will rise, they might buy a 10-year Treasury note and sell a 2-year Treasury note. If interest rates do indeed rise, the investor will profit from the interest rate differential.
The full carry trade can also be used to hedge against interest rate risk. For example, if an investor is holding a portfolio of bonds with fixed interest rates, they might buy a 10-year Treasury note and sell a 2-year Treasury note. If interest rates rise, the investor will offset some of the losses from their bond portfolio with the profits from the full carry trade.
The full carry trade is not without risk. The most obvious risk is that interest rates could move in the opposite direction than what the investor is expecting. For example, if an investor buys a 10-year Treasury note and sells a 2-year Treasury note, but interest rates fall, the investor will lose money on the trade.
Another risk is that the interest rate differential could narrow. For example, if the interest rate on the 10-year Treasury note falls faster than the interest rate on the 2-year Treasury note, the investor will lose money on the trade.
Another risk is that the financial instruments involved in the full carry trade could become illiquid. For example, if the 10-year Treasury
How do you capture a carry on the market?
There are a few ways to capture a carry on the market. The most common way is to use futures contracts. This is where you agree to buy or sell a commodity at a certain price on a certain date in the future. The price of the commodity is set today, and the contract is settled on the delivery date.
Another way to capture a carry is to use options contracts. With options, you have the right, but not the obligation, to buy or sell a commodity at a certain price on a certain date in the future. You can also use options to hedge your positions or to speculate on the price of a commodity.
Lastly, you can also use physical commodities to capture a carry. This is where you actually buy or sell the commodity itself, rather than a contract for it. Physical commodities can be more volatile than futures or options, so they may not be suitable for everyone. What is meant by cost of carry? When you buy a commodity, you incur costs associated with storing and transporting that commodity. These costs are known as the "carry" costs, and they must be factored into your decision of whether or not to buy the commodity.
The main carry cost is the interest expense associated with borrowing money to buy the commodity. If you're buying a commodity for delivery in the future, you will have to pay interest on the money you borrowed to buy the commodity today. Other carry costs can include storage costs, insurance costs, and transport costs.
You can think of the carry cost as the "cost of holding" the commodity. When you factor in the carry cost, you're effectively buying the commodity at a higher price than the spot price. The higher the carry cost, the higher the price you have to pay to buy the commodity.
The carry cost is an important factor to consider when trading commodities, because it can have a significant impact on your overall profits or losses. If you're not careful, the carry costs can eat into your profits and leave you with a loss.
What are the 2 categories of futures trading?
There are two main types of futures trading:
1) Speculative trading: This type of trading is undertaken with the aim of making a profit from price movements in the underlying asset. Speculators typically take a view on whether the price of an asset will rise or fall, and trade accordingly.
2) Hedging: This type of trading is undertaken in order to protect against price movements in the underlying asset. For example, a farmer may hedge against the risk of a fall in the price of wheat by selling wheat futures.
What is carry P&L?
In futures trading, the term "carry" refers to the cost of storing a commodity for a period of time. This cost is usually expressed as a percentage of the commodity's value and is known as the "carry charge."
The carry charge is calculated by taking the current price of the commodity and subtracting the price at which the commodity was purchased. This difference is then divided by the number of days between the purchase date and the current date, and multiplied by the number of days in the contract.
For example, if a trader buys a contract for December corn at $3.50 per bushel, and the current price of December corn is $3.60 per bushel, the carry charge would be ($3.60 - $3.50) / 365 * 30, or $0.02 per bushel.
The carry charge is important because it represents the cost of holding a commodity position for a period of time. This cost must be factored into the decision of when to buy or sell a commodity contract.