How Does the “Cost of Carry” Affect the Theoretical Price of a Futures Contract?

The cost of carry is the net cost of holding the underlying asset until the futures expiration date. It includes financing costs (interest paid) and storage costs (e.g. insurance, secure custody), minus any income generated (e.g. dividends, staking rewards).

The theoretical futures price equals the spot price plus the cost of carry. A positive cost of carry leads to contango, where the futures price is higher than the spot price.