Spreadex, the spread betting broker who generally win business on customer service rather than costs has made a few changes to overnight financing charges.
Overnight financing is the fee you pay for trading on margin. Basically if you buy £100,000 worth of stock with only a £5,000 initial margin Spreadex (or any decent spread betting broker) will go into the market and buy £100,000 worth of stock.
They would normally do it on the normal settlement which is T+3 and will have to lodge funds with the exchange to cover the position. So even though you have only laid out £5k the broker has laid out £100k.
That £100k will have come out of their account, not the client accounts so, in order to avoid interest charges they pass them on to the client.
Spreadex charge over night financing rates of 2% for FTSE 1oo stocks or 3% for FTSE 350. The rates vary for commodities, FX and indices.
Overnight financing is a major source on income for brokers, so always make sure you are no being over charged. Anywhere between 2% and 3.5% is fairly industry standard.
If your account is over £100,000 and you have a lot of long/short positions on you may be able to negotiate discount funding rates, but it is rare.
Anyway, Spreadex now charge, interest on the weekend rather than not. In a note to clients they said:
What do we currently charge?
Currently, we charge a fixed amount over 5 days (Monday to Friday) and there is no charge at the weekend.
What are we changing?
On Tuesday we will be changing the way we structure our funding charges. We will be introducing weekend roll charges (3x on Friday), but we will also reduce the charges midweek by 28.5% so there is no net increase in charges for positions held for 7 days.
We have done this to unify the way we charge funding with the rest of the industry and with other markets offered by Spreadex.
Read our Spreadex Review…
Which will effect clients in the following ways:
- If you are a day trader holding positions during the week and close out before the weekend this will reduce your funding charges.
- If you hold a position for 7 days your funding charges will remain the same.
- If you hold a short-term position over the weekend (Friday-Monday) this will increase your funding charges.
But why do this?
Maybe it’s an indication that they think interest rates will go up. There is potential to arbitrage between brokerage accounts if one accounts pays you interest on short positions and the other doesn’t as you can hold a long over the weekend and pay not interest but collect interest from another broker that pays short interest.
It not applicable at the moment because interest rates are so low that even short interest is in negative territory as 1 month libor -3% is below zero.
However, if rates go back up and funding charges go down then, there maybe arbitrage opportunities.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.