Capital.com says it will now publish the rates of how overnight funding was charged. Capital.com is, in fact, one of the growing trading platforms that show overnight funding charges on trading tickets.
Funding charges are an integral part of CFDs, rolling spot Forex, and certain Spread Betting contracts that are not priced as futures, such as rolling bets.
The charges represent the cost of carry on margined positions.
Traders that hold long positions pay funding charges to the broker to cover their cost of carry on the underlying instrument, whilst those traders that hold short positions receive funding in lieu of their settlement proceeds.
Funding charges are only applicable to margin trades that are held open for longer than a business day.
- Want more info? Read our expert guide to overnight financing rates
The new funding charges are to be calculated based on a known premium or discount, to the relevant overnight funding rates.
So for example, a long CFD position on a US equity index that is dollar-denominated will attract funding charges based on the following calculation:
(Position size * index value) *the US Secured Overnight Financing Rate (SOFR) +/-4%
Whilst for commodities and Forex contacts Capital.com will reference rates used in the underlying markets.
That’s the Tomnext or tomorrow next-day funding rates in FX, and the appropriate futures contracts in the case of commodities.
- See which brokers charge the lowest overnight financing rates in our trading platform comparison table
This a notoriously opaque area in the margin trading business, and in my experience many firms are unable, or unwilling, to explain how they calculate their overnight swaps rates.
Meaning that they amount to a hidden charge on a trader’s account.
Capital.com has come out from behind its website to explain the funding schedules and though +/- 4% premium sounds steep to me, clients can now make an informed choice about whether they want to pay those rates on their overnight trades.
- Find out more about this broker by reading our expert Capital.com review
With over 35 years of finance experience, Darren is a highly respected and knowledgeable industry expert. With an extensive career covering trading, sales, analytics and research, he has a vast knowledge covering every aspect of the financial markets.
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