CFD holding costs

Holding (or carry/swap) payments are made each night (at 5pm EST, 10pm UK time) for all open CFD trades on treasury and commodity cash (or spot) products, for example UK Gilt - Cash and Natural Gas - Cash .

Cash commodity and treasury products are derivatives, with the prices derived from a scaled futures price. This is updated each night to ensure that the cash price converges to the current primary (most liquid) futures price, by the time the futures contract expires. This scaling update results in an adjustment to the cash price, which is the basis of the holding rate cost.

The holding payments offset the price adjustment, ensuring that our clients pay a fair rate on both buy and sell CFD trades, with neither side benefiting or being disadvantaged by the price adjustment. In addition to the price adjustment, the holding rate also includes a CMC charge to fund the provision of these products. The CMC charge will be whichever is larger of 3% and a proportion of the price adjustment.

Since the holding rates are based on the current primary futures price, they are subject to change as the primary futures contract approaches expiry and is replaced by the next futures contract. However, the price adjustment will also be updated as the primary future is replaced, resulting in no change to the impact on clients’ account value.

Examples

Determining the price adjustment rate

1. The annualised price adjustment rate can be found as the average of the buy and sell holding rates.
   Price adjustment rate = (buy holding rate + sell holding rate) / 2
2. The buy holding rate is then given by subtracting the CMC charge*.
   Buy holding rate = price adjustment rate - 3%
3. The sell holding rate is then given by adding the CMC charge*.
   Sell holding rate = price adjustment rate + 3%

*The CMC charge is shown as 3% for simplicity.

Impact on account value

To demonstrate that holding payments offset the price adjustment and that the price adjustment rate doesn’t impact the account value, consider this example where the CMC charge is applied separately to the price adjustment rate.

Alice has an account value consisting of £1,000.10 cash, and 1 pound/euro per unit of a commodity with a price of £1.230 (1,230 points).

Her total account value before the holding payment is therefore:

£1,000.10 + 1 £/unit x 1,230 = £2,230.10

At 5pm (EST) the holding payment is due, and the CMC charge on Alice’s position is automatically applied. This incurs a cash charge of 3% / 365 of £1,230 (0.03 x £1230 / 365 = £0.10), resulting in a new account value of

£1,000 + (1 x £1,230) = £2,230.00

At the same time, the cash price is adjusted up towards the futures contract, by 5% / 365 to £1.23017, artificially increasing the value of Alice’s position by 5% / 365 of £1,230 (0.05 x 1,230 / 365 = £0.17) to £1,230.17. To offset this increase, Alice is simultaneously required to pay the price adjustment on her position which is also £0.17.

Her total account value after the holding payment is therefore equal to her account value prior to the price adjustment payment.

£999.83 + (1 x 1,230.17) = £2,230.00

Note that if Alice had placed a short (sell) trade, the direction of the price adjustment payments would be reversed, and she would receive the price adjustment payment, as the value of her position would have decreased.

Short (sell) trade

Initial cash: £1,000.10
Initial position value: 1 £/unit short at a price of 1,230 = £1,230
Initial account value: £1,000.10 + £1,230.00 = £2,230.10
CMC charge: 3% of position = 0.03 x 1,000 x 1.23 / 365 = £0.10
Price adjustment: 5% / 365 results in an increase from £1.23 to £1.23017
Corresponding position value change: -£0.17
Final cash: £1,000.10 - £0.10 + £0.17 = £1,000.17
Final position value: 1 £/unit short at a price of 1,2915 = 1,000 x (£1.23 - (£1.23017 - £1.23)) = £1,229.83
Final account value: £1,000.17 + £1,229.83 = £2,230

Long position with higher price adjustment rate

Initial cash: £1,000.10
Initial position value: 1 £/unit long at a price of 1,230 = £1,230
Initial account value: £1,000.10 + £1,230.00 = £2,230.10
CMC charge: 3% / 365 of position = 0.03 x 1,000 x 1.23 / 365 = £0.10
Price adjustment: 15% / 365 results in an increase from £1.23 to £1.23051
Corresponding position value change: +£0.51
Final cash position: £1,000.10 - £0.10 - £0.51 = £999.49
Final position value: 1 £/unit long at a price of 1,230.51 = 1,000 x £1.23051 = £1,230.51
Final account value: £999.49 + £1,230.51 = £2,230

Holding costs visual representation

The graphic below represents the four possible holding cost scenarios. The height of each column represents the total account value, calculated from the position value and cash balance in the account. In every scenario, the account value is only reduced by the CMC charge, regardless of the value of the price adjustment rate.

Overnight fees for share CFDs are based on the underlying interbank rate for the currency of the relevant share (see table below), plus 0.0082% on buy positions and minus 0.0082% on sell positions.

Holding costs are charged for buy positions and credited for sell positions, unless the underlying interbank rate is equal to or less than 0.0082%, in which case sell positions may incur a holding cost charge that will be deducted from the cash in your account. Holding rates for sell trades may also include an additional adjustment for borrowing fees on shares that attract a higher borrowing cost in the underlying market. These borrowing fees can be significant and are subject to large changes as short interest in a stock increases. Please be aware of this additional risk/charge when holding sell trades in individual shares.

Overnight holding rates for index CFDs are based on the underlying interbank rate of the index (see table below), plus 0.0082% on buy positions and minus 0.0082% on sell positions.

Overnight holding rates for forex CFDs are based on the tom-next (tomorrow to next day) rate in the underlying market for the currency pair and are expressed as an annual percentage.

Buy position holding rate = tom-next rate % + 0.0027%

Sell position holding rate = tom-next rate % - 0.0027%

Different rates are quoted for buy and sell positions and are actively traded between banks. Tom-next rates in the underlying market are based on the interest rate differential between the two currencies. As a general rule, if the interest rate of the first named currency is higher than the second named currency in the forex pair (subject to the adjustment detailed above), and you hold a buy position, the holding cost will be credited to your account. Conversely, if you hold a sell position in this scenario, the holding cost will be debited from your account.

Holdings costs for share baskets, forex indices and commodity indices are calculated via a weighted sum of the constituents' holding cost rates, plus CMC's charge on buy positions or minus CMC's charge on sell positions.

A forward contract is a product with a fixed expiration or settlement date, upon which open positions will be settled at the closing price. Index, FX, commodity and treasury forward contracts are not subject to holding costs.