Why is overnight funding charged?
When placing a CFD trade, you’re using leverage. This means you are effectively being lent the money required to open your position, outside the initial deposit you’ve paid.
Using the example of CFDs, let’s say you’re using a cash CFD. As we explain on the expiries page, this type of trade is designed primarily for short-term positions. So, if you want to keep it open overnight, you will be charged a small fee to cover the cost of the money you’ve effectively borrowed.
The charge will be triggered once you pass the daily cut-off time (typically 10pm UK time, although this varies for some international and local markets). If you close your position on the same day before this time, there is no funding fee.
Note, overnight funding is only paid on cash CFDs. For future products, or those with an expiry date, you don’t pay this charge – instead, they have a wider spread.
How are the charges calculated?
Shares, indices and other markets
For the majority of markets, other than forex and spot metals, our funding fee is comprised of our admin fee plus or minus the relevant interbank rate for the currency in which your bet is made (depending on whether your position is long or short). The interbank rate is the interest rate charged between banks for short-term loans. It is a key indicator for other interest rate charges.
Let’s say you have a long trade on an Australian share, made in AUD. Our funding charge would be based on the Libor (London Interbank Offered Rate) one-month overnight rate, which is the interest rate that major banks charge to lend funds to each other. We would calculate it like this: