Carry
What does it cost, or earn, to simply hold a position over time, separate from any price move?
In plain words
Carry is the income or cost of holding a position for a period, before any change in the price itself. In perpetual futures it appears as the funding rate: a payment between longs and shorts. When carry is positive, holders of the paying side bear a running cost.
Why it matters
Carry changes the arithmetic of holding. A position that gains from a price move can still lose money once the carry is added, and a losing position can be cushioned. Carry also shows which side of the market is paying to stay in place over time.
In a real week: ETH, week of 4 January 2021
In the week of 4 January 2021, ETH perpetual funding averaged 0.1652% per eight hours, with a maximum of 0.375% and a minimum of 0.043%. Longs paid that amount every eight hours simply to stay in their positions, a running cost independent of price. ETH itself closed the week 28.2% higher at 1254.25 after opening at 978.33, so the price move dominated the carry.
A common mistake
Treating carry as profit or loss on its own. It is a flow attached to holding, so a favourable carry never offsets an adverse price move unless that move is smaller than the carry.