Understanding Overnight Financing

When you hold a leveraged trade overnight, a small fee is applied to maintain that position. Here’s a breakdown of what overnight financing entails.

What is Overnight Financing?

Overnight financing is a fee associated with maintaining a leveraged trading position beyond the trading day. It compensates for the cost of borrowing capital to support your position. This charge is applicable only to trades without a fixed expiry date. Futures contracts, for instance, are exempt from this fee because their cost is included in the spread.

The financing cost is calculated based on the total value of the position and is determined by adding or subtracting a relevant interest rate benchmark to a base rate of 2.5%. This ensures competitive charges and keeps trading costs manageable.

Interest Rates for Calculating Overnight Fees

The rates used to determine overnight financing fees vary by region:

• UK: 2.5% + SONIA
• US: 2.5% + SOFR
• EU: 2.5% + €STR
• Australia: 2.5% + Deposit Rate
• Other International: Contact Client Management for details

When Does Overnight Financing Apply?

Overnight financing fees are charged daily on any open positions, including weekends. This ensures that costs are applied consistently as long as the position is held.

Calculating Overnight Fees

For Long Positions:

You incur an overnight financing charge calculated as 2.5% plus the applicable interest rate. For example, if you purchase 100 CFDs of UK Company ABC at 435p each, and the price rises to 450p:

If you keep the position open overnight, you will be charged based on 2.5% + SONIA. Assuming SONIA is 0.5%, the total financing rate is 3%.

For Short Positions:

You receive an overnight financing fee calculated as the applicable interest rate minus 2.5%. For instance, if you sell 100 CFDs of UK Company XYZ at 500p each and the price drops to 450p:

• The financing fee is based on 2.5% subtracted from SONIA. Assuming SONIA is 3%, the total financing rate is 0.5%.

In this scenario, £0.61 will be credited to your account.

Note: For US and EU stocks, the divisor is 360 instead of 365 for calculations.

Understanding these fees and how they’re calculated helps in effective trade management and cost planning.