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Funding charges definition
Funding charges, or interest charges, are the fees levied on leveraged positions that are held open overnight.
This is because leveraged trades are made using margin, meaning that you only provide a deposit in order to open the trade. You are in effect borrowing the rest of the position’s total cost from your provider. Funding charges are the cost of borrowing this money over more than one day.
Calculating funding charges
Funding charges are calculated differently dependent on your provider, what leveraged product you are using and what market you are trading. For example, at IG funding charges for spread betting or CFD trades are the same, but are based on interbank rates (like LIBOR) for stocks and tom-next rates for forex.
Forward contracts or bets will not incur any funding charges, as the cost to keep them open is taken care of via the spread or commission charge. There is also no cost to keep a share dealing trade open, because share dealing trades are not made using leverage.
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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.