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Overnight charges for spreadbetting positions


BigDeal

Question

I am unsure whether IG are charging correctly for positions held overnight.  

I will use IG's own help files to illustrate:

 

Why is overnight funding charged?

When placing a spread bet or CFD, you’re using leverage. This means you are effectively being lent the money required to open your position, OUTSIDE THE INITIAL DEPOSIT YOU'VE PAID. To keep your position open after 10pm (UK time), an interest adjustment will be made to your account to reflect the cost of funding your position overnight.

Indices :      

For each day that a DFB or cash CFD position is open on a stock index, adjustments are calculated to reflect the effect of interest and dividends (if applicable).

Example:

You’re long £6 per point on the FTSE 100

The 10pm (UK time) price is 7720

The SONIA rate* is 0.48%

Cost = £6 x 7720 x (2.5% + 0.48%) ÷ 365

=£46,320 x 2.98% ÷ 365

 

= £3.78 overnight charge

 

* We use the SONIA and the 365-day divisor since you’re trading the UK Index in GBP

 

OK, so my query is this;  as a retail trader, I need to pay a 5% margin (deposit) to open an index position on a spreadbet DFB.  Your overnight charges should therefore reflect the amount I am borrowing (95% of the trade) as per your 'why is overnight funding charged?'.  However, it seems the calculations charge as if 100% of the funds have been borrowed.  Why is there no adjustment for the initial margin?

 

 

 

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Hi @BigDeal

Agreed, the words on the website can be misleading. In reality your margin is set aside to secure your exposure. We give you exposure to the full notional value of the trade without using the funds set aside i.e. we do not use your margin to hedge our exposure. In effect margin works like an insurance rather than contributing towards the amount invested. Therefore we calculate overnight funding on the full notional value. 

All the best, 

Anda

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