Carrying Cost

Carrying cost is the price of holding a position over time, rather than the price of getting into it. Whenever you own something or have a position open, there are ongoing costs (or sometimes offsetting income) that accrue simply because time is passing while you hold it.

For a stock bought with borrowed money (margin), the main carrying cost is the interest your broker charges on that loan each day the position stays open. For a short position, the carrying cost can include the dividends you owe to the lender of the shares, plus any fee for borrowing the stock itself. For futures and options, carrying cost shows up in the pricing itself: the difference between the current price and the price for future delivery reflects financing costs, storage costs (for physical commodities), and expected dividends or interest, all rolled into one number.

The nuance that trips people up is that carrying cost is not a single fixed fee, it is a rate applied over time, so it barely matters if you hold something for a few minutes but becomes significant the longer a position sits open. It also is not always a pure expense: a stock's dividend can partially offset the interest cost of holding it long on margin, and in some futures markets a favorable carrying relationship can actually make holding a position profitable independent of price movement.

People sometimes confuse carrying cost with commissions or spreads. Commissions and spreads are one-time costs paid to enter or exit a trade. Carrying cost is the ongoing cost of staying in the trade, and it keeps accumulating for as long as the position is open.