Overnight Daily Financing Adjustment... Debit/Deposit

[Mikey]

Hi Folks,

Can someone please kindly give me an example of how this is calculated on a short trade on Natural Gas (undated)? Preferably at 10pm on either April 10th or 11th? (I'm assuming the price level plays a factor into it etc)

I'm playing with the demo account and I've been short since the spike and then I found a couple of overnight deposits in the account. I've looked here: https://www.ig.com/uk/charges#overnightfunding at the example but still can't get my head around how the maths work.

Thank you in advance!

Mike

[AshishIG]

On 12/04/2023 at 23:00, Mikey said:

Hi Folks,

Can someone please kindly give me an example of how this is calculated on a short trade on Natural Gas (undated)? Preferably at 10pm on either April 10th or 11th? (I'm assuming the price level plays a factor into it etc)

I'm playing with the demo account and I've been short since the spike and then I found a couple of overnight deposits in the account. I've looked here: https://www.ig.com/uk/charges#overnightfunding at the example but still can't get my head around how the maths work.

Thank you in advance!

Mike

Hi @Mikey,

Prices for commodity cash CFDs are synthetically created using the two most liquid futures contracts. This will result in a natural movement between these two contract prices and will be included in overnight funding adjustments. You’ll then either be debited or credited depending if you’re long or short, and whether the next future contract price is higher or lower.

Commodity funding is based on the market cost of carry, plus an admin fee of 2.5% per annum.

Please note that open positions held through 10 pm (UK time) on Fridays will be adjusted for three days’ worth of funding to cover the weekend.

There are three steps to this formula:

1. Basis (the daily movement along the futures curve)
(P3 – P2) ÷ (T2 – T1)

T1 = expiry date of the previous front future
T2 = expiry date of the front future
P2 = price of front future
P3 = price of next future

2. IG charge
Price x 2.5% ÷ 365

3. Adjustment
(Number of contracts x value per contract) x (basis + IG charge)

Example:
Let's say you are short one $10 contract on Natural Gas on 10th April 2023.

T2 – T1 = 31 days (25th April 2023 till 25th March 2023)
P2 price is 2171 (Closing price for May contact on 10th April)
P3 price is 2366 (Closing price for June contract on 10th April)

Basis = (2366 – 2171) ÷ 31 = $6.2903
IG charge = 2171 x 2.5% ÷ 365 = $0.1487

Adjustment = (1x$10) x ($6.2903 - $0.1487) = $61.416

**$61.416 will be credited to your account as will be short, and the next future contract was higher than the front contract.

If you need further information or clarifications, please reach out to helpdesk.uk@ig.com.

All the best- AshishIG

[Mikey]

On 14/04/2023 at 02:19, AshishIG said:

Example:
Let's say you are short one $10 contract on Natural Gas on 10th April 2023.

T2 – T1 = 31 days (25th April 2023 till 25th March 2023)
P2 price is 2171 (Closing price for May contact on 10th April)
P3 price is 2366 (Closing price for June contract on 10th April)

Thanks Ashish!

Looking at the chart for Nat Gas, I notice the closing prices at 21:59 on April 10th, 2023 were:

P2 price is 2181 (Closing price for May contact on 10th April)
P3 price is 2372 (Closing price for June contract on 10th April)

Obviously these prices differ v slightly from what you quoted so I'm wondering if I 21:59 is the correct time when the prices are recorded?

Also, how is this calculation made when there are no future prices, for example Carbon Emissions?

Thanks in advance.

Mike

[AshishIG]

14 hours ago, Mikey said:

Thanks Ashish!

Looking at the chart for Nat Gas, I notice the closing prices at 21:59 on April 10th, 2023 were:

P2 price is 2181 (Closing price for May contact on 10th April)
P3 price is 2372 (Closing price for June contract on 10th April)

Obviously these prices differ v slightly from what you quoted so I'm wondering if I 21:59 is the correct time when the prices are recorded?

Also, how is this calculation made when there are no future prices, for example Carbon Emissions?

Thanks in advance.

Mike

Hi @Mikey,

Thank you for reaching out. Our Desk has confirmed that the Mid-price at 4 pm UK time will be used to calculate the basis + funding. I apologize for any confusion caused by our earlier communication regarding the timing and numbers.

In this case, The May contract closing price at 4 pm UK time on 10th April was 2146, denoted as P2 price, while the June contract closing price at the same time was 2337, denoted as P3 price.

Here is the calculation: 
Basis = (2337-2146)/31= $6.1613
IG charge = (2146*2.5%)/365= $0.147 
Adjustment = (1x$10) x ($6.1613-$0.147)= $60.143 which will be the overnight fee.
Hope this clarifies your doubt.

Regarding your second question, we do not offer undated/daily contracts for commodities if there is no future price available. Since we only have the May contract price available for Carbon Emissions, there are no undated contracts available at this time.

All the best,

AshishIG

[brandleesee]

On this same topic, please, and following the example, where would I find the contract value for the May and June contracts? (in the context that at the time of the example the shorting was April) Thank you in advance.