Negative Carry
The Formal Definition
An ongoing market condition where the financial cost of holding and financing an asset (margin interest, swap rates, storage, borrow fees) exceeds the income or dividend yield generated by the asset over that holding period.
Net Carry ($) = Periodic Asset Yield Earned - (Financing Borrow Rate + Custodial Drag + Storage Cost) < 0
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Negative carry is the slow bleed of an unhedged position. If you buy a stock on 9% margin that pays a 3% dividend, you have 6% negative carry every single year. That position has to rally 6% annually just for you to break even on paper."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: Holding a $100,000 leveraged equity position paying a 2.5% dividend yield across 12 months
| Execution Metric | Low-Margin Financing Desk (IBKR Pro) | Legacy Retail Margin Desk |
|---|---|---|
| Fee / Rate | SOFR-linked margin tier | Base retail tier |
| Spread / Buffer | Borrow interest rate: 5.80% | Dividend income: 2.50% | Borrow interest rate: 12.50% | Dividend income: 2.50% |
| Execution / Status | Net Annual Negative Carry: -3.30% | Net Annual Negative Carry: -10.00% |
| Total Cost / Result | Sustainable leverage hurdle rate | Lost 10% of total equity purely to financing friction |
How Brokers Weaponize This Term
Brokers conceal the compounding effect of negative carry by billing margin interest as monthly micro-debits against uninvested cash rather than displaying total annualized financing drag on portfolio dashboards.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Transparent, benchmark-pegged tiered margin schedules providing the lowest native financing rates in the retail sector.
Read Audit →Cole Flags / Avoids
Legacy Discount Desks: Charges 11% to 13% margin interest, creating severe negative carry that erodes medium-term trading profits.
View Trap Details →Frequently Asked Questions
What is the opposite of negative carry?
Positive carry, where the yield, dividend, or interest earned from holding an asset exceeds its borrowing and holding costs (such as in classic FX carry trades).
Does physical gold have negative carry?
Yes. Physical gold generates zero yield and incurs ongoing storage, insurance, and custodial fees, making it a classic negative-carry asset.