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 3% +/- 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 performing well, and the share price has increased to 450p by the end of the day. As you are waiting for the price to reach 480p before closing the trade, you decide to keep the position open overnight.

As this is a long position, you will pay an overnight financing charge to keep the position open. This charge is calculated as the relevant benchmark rate plus 2.5%. In this example, the current SONIA rate is 3.0%.

The overnight financing charge is calculated as:

(100 × 450p) × (2.5% + 3.0%) ÷ 365

£4,500 × 5.5% ÷ 365

£247.50 ÷ 365 = £0.68

This would result in £0.68 being debited from your account for each day the position remains open.

Note: US and EU stocks use a 360-day basis rather than 365 days.

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 420p. You decide to keep the trade open overnight.

As it is a short position, you will receive an overnight financing credit for keeping the position open. The current SONIA rate is 3.0%.

The overnight financing is calculated as:

(100 × 450p) × (3.0% - 2.5%) ÷ 365

£4,500 × 0.5% ÷ 365

£22.50 ÷ 365 = £0.06