Clarity on overnight funding costs

[ssukha]

Hi Guys,

I would like some clarity on the overnight funding costs (Daily Financing Adjustment) when shorting Oil. I have shorted Oil 17 times in last few months and have never received any credit ever. On the contrary, I have some amount debited from my account every time under Daily Financing Adjustment.

I have also shorted Copper and Gold once each and have received credit both times.

You’re short one A$10 contract on Oil – US Crude
T2 – T1 = 31 days
P2 price is 4700
P3 price is 4770

Basis = (4770 – 4700) ÷ 31 = A$2.258
IG charge = 4700 x 2.5% ÷ 365 = A$0.322

Adjustment = (1xA$10) x (A$2.258 - A$0.322) = A$19.36*

_{A$19.36 will be credited to your account as you were short, and the next future contract was higher than the front contract.}

Examples as shown above on the IG website usually claim that your account is credited when shorting. I would appreciate your help in explaining why my account is debited instead of receiving credit.

Thanks

 

Edited August 4, 2023 by ssukha
typo

[KoketsoIG]

Hi @ssukha,

Thank you for the post.

As mentioned in your post above, the overnight adjustment is broken down into two parts: the daily movement along the futures curve (basis), and the IG charge. 

The basis equates to the daily movement of our undated price along the futures and may be a credit or a debit. This will either be a positive or negative number depending on the direction of your trade and the slope of the forward curve. In addition, the magnitude of the basis will depend on the spread between the front and back future, big spreads will cause big overnight adjustments. 

For example, if you were short, and the next future contract was lower than the front contract then the adjustment would be a debit. So it is not necessarily that short trades equate to credits.

If you need further clarifications related to the overnight costs on your account, please reach out to helpdesk.uk@ig.com.

I hope this helps.

KoketsoIG

[ssukha]

Thanks KoketsoIG