By TraceyShort · Posted
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
CFD, share dealing and stocks and shares ISA accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd. IG is a trading name of IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. Both IG Markets Ltd (Register number 195355) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.
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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.
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).
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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