Carrying Charge Market

AAA

DEFINITION of 'Carrying Charge Market'

A futures market where contracts with maturities further into the future have higher future prices relative to current spot prices. These higher future prices are associated with higher carrying charges, such as interest, insurance and storage for holding the commodities for a longer period of time. Because a carrying charge market incorporates the full cost to carry a commodity, it is also called a "full carry market."

BREAKING DOWN 'Carrying Charge Market'

If it costs $1 a month to insure and store a half bushel of corn, and the spot price is $6 per half bushel, a contract for a half bushel of corn that matures in three months should cost $9 in a carrying charge market. However, when a commodity is in low supply, spot prices might be higher than future prices. This higher price helps to ration the limited supply.

RELATED TERMS
  1. Cash Market

    The marketplace for immediate settlement of transactions involving ...
  2. Full Charge

    The event in which the price of a futures contract covers all ...
  3. Carrying Charge

    Cost associated with storing a physical commodity or holding ...
  4. Cash Price

    The actual amount of money that is exchanged when commodities ...
  5. Carrying Broker

    A commodities or securities broker who provides back office functions ...
  6. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
Related Articles
  1. Options & Futures

    Your Futures Are In Good Hands With CTAs

    Profit from up, down and sideways markets with commodity trading advisors.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Options & Futures

    A Guide To Investing In Oil Markets

    Find out how to take advantage of this market without having to open a futures account.
  4. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  5. Options & Futures

    Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
  6. Options & Futures

    Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  7. Options & Futures

    Options On Futures: A World Of Potential Profit

    There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
  8. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Chart Advisor

    Traders Step Back to Assess Commodities Damage

    Traders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  3. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  2. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  3. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  4. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  5. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  6. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!