If you hold a long ‘spot’ position on a commodity with us, it’s important to understand how our markets are priced.
Our spot commodity prices are based on the two nearest futures contracts on the underlying commodity, as these tend to be the most liquid contracts. As time passes, our spot price moves from the nearest contract towards the next. The daily basis adjustment is reflected as a single price movement at 10pm (UK time), rather than gradually throughout the trading day.
The ‘front month contract’, the one with the closest expiry date, is labelled ‘A’ in our diagram. The one with the second-nearest expiry date is called the ‘back month contract’ and is labelled ‘B’.
Between these two expiry points, our spot price moves from the price of 'A' towards the price of 'B'. This daily movement is reflected as a single basis adjustment at 10pm (UK time).
As with all of our spot markets, you'll pay to hold your position overnight. Due to how our spot commodities are priced, we apply an overnight adjustment – split into two components:
The first is the daily basis adjustment, which is reflected as a single movement at 10pm (UK time). It reflects the daily movement of our spot price from the front-month futures contract towards the next futures contract.
The second is our 3% annual admin fee.
The difference in price between two contracts is dependent on the commodity and market conditions and can vary substantially. When the difference between these underlying futures prices is amplified, the number of points our market would move on a daily basis also increases. As a result, the basis adjustment also increases.
It is important to note that the increase only relates to the adjustment. This is a response to market conditions, similar to a dividend adjustment on an index, rather than a charge. The only aspect of the adjustment which is a charge is our admin fee, which remains at 3% for spread bets and standard CFD contracts regardless of market conditions.
You can see a worked example of the basis adjustment and overnight funding for spread betting and CFDs here.
Spread bet example
The overnight adjustment consists of two components: the basis adjustment and the IG overnight charge. These are applied to eligible positions that remain open at 10pm UK time.
Overnight adjustment = amount/pt × (basis + IG charge)
Formula for the IG charge = Price × 3% ÷ 365
Formula for basis = (P3 – P2) ÷ (T2 – T1)
T1 = expiry date of the previous front future
T2 = expiry date of the front future
P2 = price of the front future
P3 = price of the next future
The basis reflects the daily movement of our spot price as it moves between the two futures contracts used to calculate it. The basis adjustment is reflected in the price as a single movement at 10pm UK time. Depending on whether you're long or short, and on the shape of the forward curve, it may increase or decrease the value of your position.
For example, imagine you are long £10 per point on US Oil. If there was a time difference between T1 and T2 of 31 days, and the front-month future (P2) was 4700 while the next future (P3) was 4770, the overnight adjustment would be calculated as follows:
Overnight adjustment = £10 × (((4770 – 4700) ÷ 31) + (4700 × 3% ÷ 365))
= £22.58 + £3.86
In this example, the overnight admin fee is £3.86.
You'll also see a £22.58 basis adjustment, which is reflected in the price as a single movement at 10pm UK time. A corresponding ledger adjustment is then applied shortly afterwards to offset the effect of the basis adjustment, so your overall account equity – your account balance plus or minus any unrealised profit or loss – remains unchanged.
If you were short US Oil in the same example, you would receive £22.58 from the basis adjustment and pay the £3.86 overnight admin fee, resulting in a net credit of £18.72.
For any position opened before 10pm Friday that remains open after 10pm Friday, the basis adjustment is made for three days instead of one. This three-day adjustment is applied on Sunday night or Monday morning.
CFD example
The overnight adjustment consists of two components: the basis adjustment and the IG overnight charge. These are applied to eligible positions that remain open at 10pm UK time.
Overnight adjustment = number of contracts × contract size × (basis + IG charge)
Formula for the IG charge = Price × 3% ÷ 365
Formula for basis = (P3 – P2) ÷ (T2 – T1)
T1 = expiry date of the previous front future
T2 = expiry date of the front future
P2 = price of the front future
P3 = price of the next future
The basis reflects the daily movement of our spot price as it moves between the two futures contracts used to calculate it. The basis adjustment is reflected in the price as a single movement at 10pm UK time. Depending on the direction of your trade and the shape of the forward curve, it may increase or decrease the value of your position.
For example, imagine you are long one contract on US Oil. In this example, the contract size is £10. If there was a time difference between T1 and T2 of 31 days, and the front-month future (P2) was 4700 while the next future (P3) was 4770, the overnight adjustment would be calculated as follows:
Overnight adjustment = 1 × £10 × (((4770 – 4700) ÷ 31) + (4700 × 3% ÷ 365))
= £22.58 + £3.86
In this example, the overnight admin fee is £3.86.
You'll also see a £22.58 basis adjustment, which is reflected in the price as a single movement at 10pm UK time. A corresponding ledger adjustment is then applied shortly afterwards to offset the effect of the basis adjustment, so your overall account equity – your account balance plus or minus any unrealised profit or loss – remains unchanged.
If you were short US Oil in the same example, you would receive £22.58 from the basis adjustment and pay the £3.86 overnight admin fee, resulting in a net credit of £18.72.
For any position opened before 10pm Friday that remains open after 10pm Friday, the basis adjustment is made for three days instead of one. This three-day adjustment is applied on Sunday night or Monday morning.