Overnight financing explained

Any leveraged trade* held overnight is subject to a small fee to maintain that position. Let’s take a look at what that means in practice.

• Understanding overnight financing
• Which rates will be used to calculate overnight fees?
• When does the overnight financing apply?
• Financing on long positions
• Financing on short positions

* excluding futures contracts

Understanding overnight financing

Overnight financing is a fee that you pay to hold a trading position overnight on leveraged trades. It is essentially an interest payment to cover the cost of borrowed capital that you’re using.

It’s only applied to positions that have no set expiry date. You will not pay a finance charge on futures trades as they already have the cost of carry built into the spread.

Financing charges reflect the cost of borrowing or lending the underlying asset and are charged at 2.5% +/-the relevant interest rate benchmark on the total value of the position. These charges are competitive in order to keep the cost of trading low.

Which rates will be used to calculate overnight fees?

When does the overnight financing apply?

The daily financing fee will be applied to your account each day that you hold an open position (including over the weekend).

How are overnight fees calculated?

Financing on long positions

You will pay an overnight financing charge of the relevant rate plus 2.5%.

In this example, you buy 100 CFDs on UK Company ABC at 435p. The trade is doing well, and the price has increased to 450p at the end of the day. However, as you’re waiting for the market to hit 480 before closing the trade, you decide to keep it open overnight.

As it is a long position, you will pay an overnight financing fee to keep the position open, this fee consists of 2.5% + SONIA In this example, the current rate of SONIA is 0.5%.

So, the overnight financing is then calculated as:

(100 x 450p) x (2.5% + 0.5%) / 365

£4,500 x 3% / 365 = 3.69

This would result in £3.69 being debited to your account.

*Note: US and EU stocks are divisible by 360 rather than 365.

Financing on short positions

On short positions, you’ll receive an overnight financing fee of the relevant rate minus 2.5%.

However, please note there may be instances when a financing fee is charged to you when the base rate is at an exceptionally low rate.

For example, you sell 100 CFDs on UK Company XYZ at 500p. The price falls to 450p at the end of the day, but it is still some way from your target price of 420. You decide to keep the trade open overnight.

As it is a short position, you’ll receive an overnight financing fee to keep the position open. The SONIA rate is currently 3%.

The overnight financing is calculated as:

(100 x 450) x (SONIA -2.5%) / 365

£450 x 0.5% / 365 = 0.61