Cost of Carry
Trading MechanicsThe total cost of holding a forex position over time, including swap charges, financing fees, and the opportunity cost of margin used.
What Is Cost of Carry?
Cost of carry is the total expense of maintaining an open forex position over time. It primarily consists of the Swap rate (overnight financing), but can also include any commission charges on rollover and the opportunity cost of Margin tied up in the position.
Calculating Cost of Carry
For a practical example, if you hold 1 standard Lot of EUR/USD short and the nightly swap is -$8.50, your cost of carry over 30 days is approximately $255 (plus the triple Wednesday, so roughly $280). For carry-positive positions where you receive swap, the cost of carry can be negative (you earn money holding the position).
Cost of Carry in Trading Decisions
Cost of carry matters most for swing traders and position traders who hold trades for days or weeks. A 50-Pip profit target might not be worthwhile if the cost of carry consumes 20 pips of that profit over two weeks. Day traders and scalpers who close all positions before the Daily Cut-Off effectively have zero cost of carry. When evaluating longer-term trades, always factor in the cumulative swap cost or credit.
Related Terms
Swap
The overnight interest charge or credit applied when holding a forex position past the daily cut-off time. Swap rates reflect the interest rate difference between the two currencies.
Rollover
The process of extending the settlement date of an open forex position to the next trading day. Rollover results in a swap charge or credit based on interest rate differentials.