Carry Over Charge

Carry-over charge definition

A carry-over charge is defined as a finance charge assessed for storage of commodities beyond the agreed-upon delivery date or for extensions to the applicable date of foreign exchange contracts. For commodities and changes in FOREX transactions, the charge is basically an added finance charge to cover the additional days added to the contracts. Depending on the length of the delay, the carry-over charge may amount to a significant addition to the original cost of the commodities or contracts.

Calculation of carry-over charges

Typically the terms of changes in the original delivery date of commodities or foreign exchange contracts are negotiated between the involved parties, with the carry-over charge agreed upon jointly. Charges are based on a number of factors, including the length of additional time required beyond the original delivery date, the cost of maintenance for storage of commodities or retention of foreign exchange contracts, and the amount of profit or loss expected from the additional delay. Usually the shorter the additional period of time, the lower the assessed carry-over charge will be. In most cases, the potential earnings or avoidance of potential losses far outweighs the cost of any carry-over charge; when this is not the case, typically the delay will not be proposed or agreed upon. When business exigencies require the delay for reasons outside the investor’s control, the carry-over charge can be quite significant if the delay is of long duration.

Carry-over vs. carrying charges

Carry-over charges are related to, but not to be confused with, carrying charges, which are the actual costs of holding financial instruments or foreign exchange contracts or storing physical commodities over time; these costs include insurance, storage, and bookkeeping expenses. Carrying charges are not associated with a delay in the original delivery date of commodities and do not constitute an additional charge, but are incorporated into the original cost basis of commodities and securities.