What is a ‘full carry
In the futures market when the price later delivery month of the contract equal to the price of the nearest month of delivery plus full cost of transportation of goods between the months. Current costs include interest, insurance and storage. They include the costs as the money invested in the product, do not earn interest, the income from capital gains elsewhere.
Full carry also known as “full bear market or full cost of credit in the market.”
Breaking down the ‘full carry
The reason the futures markets can have contracts for the supply of the higher prices the closer the supply contracts that it costs money to Finance and/or shop, the main product for that additional term. Another term for this is contango, although it does not identify the specific differences between the prices of the two contract months. This is only the describers of the condition, where the price for each contract is higher and delivery time to push dad in the future.
For example, suppose product x has may futures price per unit of$ 10/. If the cost to transport the product x is 0.50 $/month and the June contract is trading at unit 10.50$/. This price indicates full carry, or in other words, the contract represents costs associated with holding the product for a further month.
The carrying cost can vary with time. While the cost of storage may increase interest rates for the financing of the underlying may increase or decrease. In other words, investors should monitor these costs over time to be sure that their enterprise has been duly appreciated.
To tear down is an idealized concept because the market more than futures contract do not have the exact value of the spot price plus carrying cost. It is the same as the difference between the trading price of the stock and its valuation at the net present value of future cash flows of the underlying company. The supply and demand for the shares or futures contract changes continuously so prices fluctuate around an idealized value.
On the futures market, the supply contracts may be traded under contracts for delivery in this state is called backwardation. Some of the potential causes may be short-term losses, geopolitical events, and in anticipation of weather events.
But even if more trade is higher than the more short months, they may not reflect the exact full carry. This creates opportunities for trade, to use differences. The strategy of buying a one-month contract and selling of another is called a calendar spread. What contact is bought and sold depends on arbitrager believe, market, cost, price overvaluation or undervaluation.