A Comparison of Overnight Fees When Trading a Short
Overnight fees are charges levied by online brokers when a trader decides to keep a position open overnight. The fee is basically an interest charge, applied when you hold a short-term trade but do not close it out by the end of the trading day. Overnight fees are common, and are charged by most online brokers when trading CFDs, and also when using other forms of trading, such as spread betting.
When you trade in these ways, you are using leverage, which means you are effectively borrowing the money you’ve invested in the trade, so the overnight charge reflects the interest adjustment involved in funding your position overnight. Not all instruments will incur a charge, and the way the charge is calculated may vary depending on the type of trade. Today we’re looking at overnight fees at three popular brokerages: IG, Capital, and ETX.
IG will charge an overnight fee on cash CFD positions and Daily Funded Bets (DFBs) if they are held past 10pm (UK time). Futures and forwards are not subject to overnight funding charges as they are designed to be used for longer-term trades, and consequently have wider spreads. The formulas used to calculate the overnight fees are:
- For CFDs: number of contracts x value per contract x price x (2.5% admin fee +/- LIBOR%) ÷ 365
- For spread bets: Bet size x price × (2.5% admin fee +/- LIBOR%*) ÷ 365
Mini contracts incur a 3% admin fee and all open positions held through 10pm on Fridays will incur three days’ worth of overnight fees over the weekend.
Capital charge overnight fees which vary depending on the asset being traded and the risk of holding that asset overnight. This means that each trade is calculated differently, and when trading more volatile assets, that carry a higher risk, you may see the overnight rate change in line with any price changes of the underlying asset.
Therefore, when trading with Capital, you will need to look at the overnight fee for each trade by accessing the individual page for the instrument being traded. You can find current daily overnight fee rates for each asset on that page, either via the web platform, or within the mobile app.
At ETX the overnight charge depends on the currencies involved in the trade you have open. That’s because the fee is based on the funding charges paid to maintain an open position in the underlying interbank foreign exchange markets. These rates are not fixed, so charges vary and will change when the factors used to derive them change.
A typical formula used to calculate the charges on equities, indices, and commodities would be:
Total Position Size x 3.5% / 365
There is also a set ETX charge, which is fixed at 0.0054 % which is competitive compared to similar brokers.
Remember that formulas include ÷ 365 because they are being held for one night of the year. Open positions held over weekends will incur three overnight fees.