What is a Full Carry?
Full carry is a concept specific to the futures market. The term implies that in later months of the contract, the costs of storing, insuring, and paying interest on a given quantity of a commodity were fully accounted for compared with the current month.
Understanding Full Carry
Full carry is also known as a 'true carry market' or 'full carrying fee market,' and traders use these terms to describe a situation where the later delivery month contract price is equal to the close delivery month price plus the actual cost of carrying the underlying product between the months.
The full cost of transportation requires tax, insurance, and storage. This helps traders to measure the value of opportunity as money that is tied up in the asset cannot receive interest or capital gains anywhere else.
It is fair to expect futures markets to have more extended delivery contracts priced higher than closer delivery contracts as it costs money to buy and/or store the underlying product for that extended period.
The word for later deals which describes higher prices is contango. Of those commodities which have higher costs associated with storage and interest, the regular occurrence of contango is anticipated.
Potential Arbitrage
Full carry is an idealised term, since what a more extended futures contract on the market is not precisely the exact value of the spot price plus the carrying expense. It's the same as the difference between the selling price of a stock and its valuation using the net present value of the potential cash flows of the underlying firm. Delivery and demand for a stock or futures contract continuously shift such that values fluctuate around the idealised value.
