what is the cost of carry for futures both index & Stock ? will this changes on daily Mark-to-Market settlements if i carry the position till expiry & will it affects on margin requirment?
Here is an extract from NISM Series VIII module explaining cost of carry. But margin requirements do not rely entire on cost of carry because margin requirements is part of the risk management process and the clearing house or the broker can change the requirements when required and the traders are expected to bring in that margin. Cost of carry is just to measure the BASIS - i.e. the difference between spot and future price.
Cost of Carry Cost of Carry - is the relationship between futures prices and spot prices. It measures the storage cost (in commodity markets) plus the interest that is paid to finance or ‘carry’ the asset till delivery less the income earned on the asset during the holding period. For equity derivatives, carrying cost is the interest paid to finance the purchase less (minus) dividend earned. For example, assume the share of ABC Ltd is trading at Rs. 100 in the cash market. A person wishes to buy the share, but does not have money. In that case he would have to borrow Rs. 100 at the rate of, say, 6% per annum. Suppose that he holds this share for one year and in that year he expects the company to give 200% dividend on its face value of Rs. 1 i.e. dividend of Rs. 2. Thus his net cost of carry = Interest paid – dividend received = 6 – 2 = Rs. 4. Therefore, break even futures price for him should be Rs.104. It is important to note that cost of carry will be different for different participants.
Ref - NISM Series VII Module
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