Last night's funding costs

[cate]

Hi guys!

 

My overnight FX interest costs were surprisingly high. For example my USDJPY positions cost (for 6 days) about ten times what they cost last Wednesday night (which was for 4 days). Similar large increases in AUDJPY and CADJPY. Is it just me, or have other people noticed the same thing? I'm not aware of any notification from IG that might explain it.

 

Hope everyone is enjoying the holiday season!

 

Cate

[Guest london]

can IG be proactive to notify customers of these issues 

 

or do u want customers to be mushrooms ? 

[72AST]

The charges and your reasoning are totally UNACCEPTABLE. If IG follows a consortium or third party (for example Bloomberg or bank) tom next rate, that need to be questioned by IG and it cannot just pass on unreasonable overnight finance charges to clients. This will directly represents IG's capability to handle critical issues for clients. IG need to reassure clients that the financial system around forex market CANNOT take clients for a ride without any concrete rationale.

 

Overnight charge for USD/JPY is outrageously high for short. 

 

[Your Ref: Tom Next Rate of Short/Long  USD/JPY (mini) -23.71 / 16.37  ]

 

If the theory of USD strengthening during this period of year change over, then why the theory is not applied for pairs like AUD/USD. This indicates high level of manipulation and inappropriation by some party and my account has been one of the victim.

 

With reference to Short and Long Tom Next Rate of USD/JPY, why the spread is so high? 

 

Look at this simple scenario of very small retail reader:

 

I have short 20 USD/JPY mini and another IG customer is long 20 USD/JPY mini. I ended paying Y47,420 (USD422) whereas the other client receives Y32740 (USD 291). In this process, IG takes a profit of USD131 for no trade and no funding to anyone. Is this IG's (unreasonable) profiteering business model?

 

This needs to be investigated and IG is answerable. If the above example or the possible situation is not correct, please help to explain.

 

I terribly feel cheated, IG should help answer trusted clients. Should not be a spectator and enjoy the opportunity to make more profits.

 

 

[72AST]

Any help is happening from IG to recover the exorbitant funding costs?

[JamesIG]

 

Hi  - let me clarify 

---

Firstly, surely we keep our overnight trades open based on the accepted overnight funding charges which we've agreed with IG as published on your website, so how can you then change these agreed charges based on some other agreement you have with a 3rd party, namely the bank you use. Any hyped up extra charges your bank charges you for your funding is a matter between yourselves and that particular bank of your choice and should not be transferred onto your innocent customers and  I would question the legality of this.

 

And secondly, even in the event you may deem yourselves to be legally covered by some small print embedded somewhere on your website, it is morally wrong and also very bad image wise to be passing on this outrageous charge to your loyal customers in this fashion, rather than "manning up" and confronting & dealing with your bank over the issue.

 

---

So the numbers, examples, and therefore charges quoted on the IG website are exactly as stated and are variable every single day. It is not a fixed number, but a variable basis the underlying market. You can see that here. 

 

Further more this isn't a single banks charge, but a fundamental aspect of the global FX swap market to avoid the settlement of currencies and the interest rate differential between two currencies. In this instance it doesn't come down to legality - this is just how the FX markets work. 

 

 

[JamesIG]

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uhjt008 wrote:

Yes Comby. There is a bit of small print under "Forex Positions" on

https://www.ig.com/uk/spread-betting-cfds-charges

about "Tom-next", it says that it is only levied on Forex Positions but now they say its on Commodities also.

Overnighting from Dec 27 to 28 I paid £33 on a bet on Gold that realised £73

I think from now on I will day trade or not trade.

---

Hi  - we try to make all charges as clear as possible. It is clearly stated on the charges section of the website, and there is a simple worked example. If you would ever like to discuss charges before entering a trade then please give us a call.

 

The liquidity for Gold is not future traded but is instead provided by the banks themselves - as previously stated the global FX market uses Tom Next rates. This doesn't matter if you are trading a spot rate with IG, a multmillion dollar hedge fund, or a international global player. 

[JamesIG]

Hi  - IG charges on FX are very small, and the majority of the Tom Next charge comes from the underlying market. For an FX spread bet the IG charge will be 0.8% whilst on a CFD main lot it will be 0.3%. We would therefore take the underlying Tom Next and increase the spread by this 0.8% or 0.3% respectively. 

[Guest Comby]

Thanks for your reply, which unfortunately was of little help and didn't address the points I made, and, seriously was that link you provided to IG's general funding charges meant to explain how a perhaps tenfold increase over the norm in overnight charges could be charged? ..really? Historically these funding charges (while not easy for your customers to calculate exactly) deviate only minutely day to day and it is upon this premise that we take trades and are prepared to leave them open overnight subject to these normal charges. If in the future, as now appears to be the case, IG contends that it can astronomically increase these charges without warning for whatever arbitrary reasons it sees fit, then how can traders trust you as a serious broker from now on?

 

And your assertion that "this is just how the FX markets work" with the implication that all your customers should just grin and bear it I find somewhat demeaning and almost insulting. Why are your customers the ones to take this hit as it would appear that IG are not prepared to take any hit to their bottom line from this increased charge from their bank to them, but much too quick to pass this cost on solely to their customers (and also buried nicely within the normal account transaction costs without any highlighting of the situation for customers).

 

This is wholly unacceptable for a reputable trading company in a regulated environment and exposes traders to such arbitrary "shady" concealed charges in future. Maybe a regulatory query would be in order here!

[JamesIG]

There seems to be a lot of confusion about how the underlying market trades FX. After answering a number of Community members questions above I thought I should give a run down on how the funding on the FX markets actually work. This isn't something which comes up very often because the charges are usually small, so please have a good read of the below and it may provide clarity on these charges over the end of year when a large volume of trading are looking to hold a particular currency.

 

If you hold a spot currency position with IG through 10pm UK time you will receive a ‘Daily FX Interest’ adjustment. This can be found on your statement, or printed in real time against your Ledger History on the dealing platform.

 

Why is there a ‘Daily FX Interest’ charge?

In the underlying market the majority of FX pairs trade on what is known as a T+2 basis. This means that if you trade on a pair, for example EURUSD, you would receive physical delivery two days after the transaction date. This is fine if you want to take delivery of the currency, however if you’re speculating on the price movement, as you are with IG, then you can’t receive the physical currencies. 

 

We therefore need to adjust your account by the cost of funding the position from one date to the next, as you don’t receive physical delivery. This is an interest rate differential calculation, (i.e. the difference between interest paid on the borrowed currency, and received on the purchased currency). This is a process used by FX traders globally.

 

The calculation also incorporates an IG admin charge of 0.3% (or 0.8% for Spread Betting).

 

How is the IG ‘Daily FX Interest’ calculated?

Let us take EURUSD as a worked example. We will need two figures for our calculation, the underlying market swap rate (known as the Tom/Next rate), as well as the current spot rate of the currency pair at 10pm. The below figures are indicative for this calculation.

 

Assuming underlying ‘Tom/Next’ rate for EURUSD:                             0.41 / - 1.04
Assuming today’s Spot FX rate for EURUSD at 10pm UK time:          1.1995

 

Once we have the Tom/Next rate, we take the 10pm EURUSD spot rate (in points) and multiply by IG’s charge of 0.3% (or 0.8% for CFD mini or Spread Betting deal), which is then divided by 360 (international standard value for USD) days to get a daily overnight value.

 

= (11995 x 0.3%) / 360

= 35.985 / 360

= 0.09995

 

This is then applied to the underlying TomNext quote of 0.41 / 1.04

                Bid           = 0.41 – 0.09995

                                = 0.31005

                                = 0.31

                Offer        = - 1.04 - 0.09995

                                = - 1.13995

                                = - 1.14

 
This then gives us our overnight funding rate, inclusive of IG charge, of 0.31 / - 1.14. The ‘Offer’ is negative, because currently there is a higher interest rate on USD than there is on EUR. Therefore buying the pair would leave you paying a larger USD interest vs receiving a smaller EUR interest.

 

E.g. If you were long one main lot, you would do ‘Number of contracts x Contract Size x TN + IG Funding Rate’. Using the information above, if you were long one main lot, your ‘Daily FX Interest’ would be: 1 x $10 x - 1.14 = $11.40 charge per night. (Conversely if you were short, you would receive $3.10 per night).

 

If you are holding over any period when there are multiple days in one charge, then you'll only receive the IG charge once, and 'x days' times the underlying market charge. For example on a Wednesday you'd receive 3 days worth and one IG charge.  

 

Important factors to note.

FX settlement of T+2 means that if you hold your trade through 10pm Wednesday (UK Time) then you’ll need to incorporate the weekend into the calculation, and therefore you’ll have an ‘FX Interest Charge’ of 3 days. This is because currency can’t settle at the weekend, and the new spot rate would therefore fall on a Monday. It also follows that if you hold through 10pm on a Friday, you only receive a 1 day charge (even though you have to hold through three days before you can close the position).

 

Settlement of FX can’t take place on public holidays. Therefore over periods such as Christmas or Easter, or public holidays such as Martin Luther King Day or Thanksgiving, you may see interest charges for a variable number of days.

 

Some currencies trade on a T+1 basis, most notably USDCAD, USDTRY and USDRUB.

 

Spot metals, such as Gold and Silver, are traded in the same way as FX, and therefore will be subject to an overnight funding charge.

 

Can I avoid these overnight charges?

If you ever deal on spot FX, and hold the position though 10pm UK time, then you will be subject to the ‘Daily FX Interest’. If you do not hold the position through 10pm UK time, then there will be no adjustment. 

 

If you are trading on CFD mini contracts then you can reduce your overnight charges by trading main lots. This is because the IG administrative charge is 0.3% annually, rather than 0.8%.

 

There is a chance that you would receive a negative adjustment, irrespective of having a long or short position, for the same currency. This can occur if the interest rates between the two currencies are similar, and the underlying market Tom Next spread is wide.

 

On a Spread Betting account you can trade on the FX ‘Near’ or ‘Far’ forward contracts, which will have a slightly wider spread, but no daily overnight adjustment. Instead the forwards contract is adjusted by the premium, with the interest rate differential until expiry incorporated into the price.

[JamesIG]

---

Comby wrote:

Thanks for your reply, which unfortunately was of little help and didn't address the points I made, and, seriously was that link you provided to IG's general funding charges meant to explain how a perhaps tenfold increase over the norm in overnight charges could be charged? ..really? Historically these funding charges (while not easy for your customers to calculate exactly) deviate only minutely day to day and it is upon this premise that we take trades and are prepared to leave them open overnight subject to these normal charges. If in the future, as now appears to be the case, IG contends that it can astronomically increase these charges without warning for whatever arbitrary reasons it sees fit, then how can traders trust you as a serious broker from now on?

 

And your assertion that "this is just how the FX markets work" with the implication that all your customers should just grin and bear it I find somewhat demeaning and almost insulting. Why are your customers the ones to take this hit as it would appear that IG are not prepared to take any hit to their bottom line from this increased charge from their bank to them, but much too quick to pass this cost on solely to their customers (and also buried nicely within the normal account transaction costs without any highlighting of the situation for customers).

 

This is wholly unacceptable for a reputable trading company in a regulated environment and exposes traders to such arbitrary "shady" concealed charges in future. Maybe a regulatory query would be in order here!

---

 

Apologies if you feel the above posts I've made haven't been clear or address your points. Please note that if you wish to call our trading services desk and discuss one-on-one with an alternative senior sales trader who maybe able to phrase the reply differently, you should be able to up until 10pm tonight, and then over the weekend as well. 

 

Fundamentally the underlying markets TomNext rates are variable. Like you said, usually they do not deviate much, however in practice they can be as variable as FX spread. (For example, usually the spread is 0.6 on EURUSD, however during times of significant volatility and reduced market liquidity this can widen significantly - the markets are simply variable.) If the underlying market widens, then that will effect all brokers charges. 

 

Just to be clear, the significant increase in TomNext rates was not an arbitrary increase made by IG. Rather this was a direct reflection of the underlying market. This is passed on to clients because it is the clients trade. To think of it another way, did IG take the significantly higher credit which applied to clients who held the other side where the interest rate differential worked in their favor? Due to this also being a client trade, we of course didn't.

 

I hope this answers your questions fully. 

[Guest Comby]

Hi,

Firstly, surely we keep our overnight trades open based on the accepted overnight funding charges which we've agreed with IG as published on your website, so how can you then change these agreed charges based on some other agreement you have with a 3rd party, namely the bank you use. Any hyped up extra charges your bank charges you for your funding is a matter between yourselves and that particular bank of your choice and should not be transferred onto your innocent customers and  I would question the legality of this.

And secondly, even in the event you may deem yourselves to be legally covered by some small print embedded somewhere on your website, it is morally wrong and also very bad image wise to be passing on this outrageous charge to your loyal customers in this fashion, rather than "manning up" and confronting & dealing with your bank over the issue.

 

...one long standing and very disappointed IG customer!

 

[Guest CR]

James, in your detailed explanation above, can you explain/justify the logic of using yearly swap rates and applying them daily at whole value instead of adjusting by dividing by 360 days to make daily? You adjust as such the IG charge but not the yearly swap rates! With this logic if someone where to hold a long position yearly you would charge them more than 360% interest in you quoted example!!!!

Also, what justifies using this logic for metals, rather than calculating the underlying notional amount borrowed and applying a daily interest charge based on an overnight interest index?

Your logic presented here makes no sense to me and in fact looks suspiciously like wild profiteering as someone mentioned above!

[JamesIG]

Hi  - let me clarify

James, in your detailed explanation above, can you explain/justify the logic of using yearly swap rates and applying them daily at whole value instead of adjusting by dividing by 360 days to make daily?

The swap rate we use / used is the daily (hence why it's variable every single day), however on that particular day the rate was specifically large.

Also, what justifies using this logic for metals, rather than calculating the underlying notional amount borrowed and applying a daily interest charge based on an overnight interest index?

---

The logic for gold and silver is that both of these precious metals are quoted at spot and traded by the banks themselves. The underlying market itself has the rates on these which we reflect accurately on our offering. Other metals trade via futures, and therefore aren't subject to these overnight funding charges. 

 

I hope this has answered your questions but let me know if further clarification is required. 

---

[Guest CR]

James, my understanding is that swap rates change daily, BUT THEY ARE NOT DAILY RATES, THEY ARE YEARLY RATES. Are you saying that a quoted swap rate is more than 1% per day?!!!!

[Guest CR]

Furthermore, here are some facts that also align with my understanding of TomNext rates. For the benefit of the wider community, here is a link for reference

http://www.fxtrademaker.com/rollover_premium.htm

 

Copying from this page the example they use:

 

QUOTE

Rollover or Premium example:

If you are long 100,000 EUR/USD at rollover, EUR/USD at rollover is trading at 1.1800, EUR short-term interest rate is 2.25% and the USD short-term interest rate is 4.00%, the theoretical rollover calculation would be as follows:

Formula

Contract notional value x (base currency interest rate - quote currency interest rate) / 365 days per year x current base currency rate = daily rollover interest debit/credit

Therefore: 100,000 x (2.25% - 4.00%) / 365 x 1.1800 = daily rollover interest debit/credit

Further: 100,000 x -1.75% / 365 x 1.1800 = -$5.66 rollover debit to your account

 

END QUOTE

 

 

So you can see that the rate IS DIVIDED BY 365, TO MAKE IT A DAILY RATE. THE TOMNEXT RATE YOU QUOTE FOR THAT HUGE SIZE CANNOT BE A DAILY RATE! Even the “normal” daily rate of 0.118 is high, as it corresponds to a yearly adjusted rate of 43%!!!!!

So I am still disputing your methodology and your charges.

Looking forward to your reply

 

[JamesIG]

Hi there 

 

The values posted in the above table and throughout my examples are in terms of points rather than a percentage. Please can you clarify what asset class you are reffing to in your last paragraph when you are quoting a normal daily rate of 0.118? 

[Guest CR]

Hi James, it was the rate your colleague sent me to my email, I had raised the issue of the cost directly on email in parallel to this forum discussion. It was the rate applied to gold - my position the cost of which I disputed was long 8 point gold.

[Guest CR]

Your reply though that you quote points instead of percentage is not clear to me. In the end of the day, you offered an explanation of how you calculate your applied costs, based on the tomnext rates. I am saying your methodology seems to be wrong because you seem to be applying whole yearly numbers to daily charges. Can you resend a clear and final analysis of how you use the tomnext rates (the actual % rates as in my example above ) to get to your charges. Thanks

[JamesIG]

Hi 

 

Lets assume the price of gold is $1320 and you are trading £10 / pt. The TomNext on this day happens to be 0.04 / - 0.118. This is a daily figure which we have received from the underlying banks, and applied the IG funding cost to (as shown and worked out above). 

 

Your notional value on this trade is 1320 x £10 = £13,200

Your daily overnight funding cost on this trade is 0.118 x £10 = £1.18

 

Assuming that this doesn't change whatsoever throughout the year, by the end you would have paid £1.18 x 365 = £430.70 which works out at 3.26% annually, obviously significantly lower than the 43% in your query above. This is the value which you would see as a charge. 

 

EDIT: CLOSING THIS THREAD AS IT'S TIME SENSITIVE AND TWO WEEKS OLD. 

[JamesIG]

---

ppreston1954 wrote:

I have never heard of the tomnext rate, nor have I been informed that ludicrous exchange rates might hit specific pairs over holiday periods.. I feel violated and robbed once again. How can they get away with this! I want my money back.

---

 

Hi  - I'm sorry that you haven't heard of the TomNext rate before. To clarify, the TomNext rate is a universal charge for FX traders globally and this isn't a unique IG charge. It gets charged every night you hold an FX position through 10pm (on a T+2 basis as discussed above, but re-posted below for clarity). We post all our charges online which you can have a look at before you trade, and are also quoted every night on your overnight statement if you hold an open FX position. If you have held a trade open through 10pm historically you would have paid an overnight funding charge and you would have been informed about this every night via your daily statement.

 

Charges are quote on the IG.com site here, as well as a worked example here, and very finally in the help and support portal for every single asset type here. If you would like any education or help you can progress through the IG Academy courses here which will teach you everything you need to know about our products.

 

We have a great trading services help and support team which can be contacted via phone, email, live chat, social media, or IG Community if you would like any information about trading with IG, and if you would like a one-on-one walk through or worked example please give us a call and we can go through all charges relating to your account specifically. 

 

All other things being equal (ignoring bank holidays)  FX charges would be seen as below, however bank holidays etc will effect this. 

 

Monday 1 day charge

Tuesday  1 day charge

Wednesday 3 day charge (on the T+2 basis to take into account the weekend) 

Thursday 1 day charge

Friday 1 day charge

Saturday no charge

Sunday no charge

[JamesIG]

EDIT: CLOSING THIS THREAD AS IT'S TIME SENSITIVE AND TWO WEEKS OLD. 

 

Hey 

 

There has been a significant change in the tomnext rate which is applied to your DFB/spot FX positions, this has been seen when rolling spot positions from December into January.

This has been applied to most FX pairs across the market but the most significant change has been seen in USD, particularly if you are short USD. This could also have affected your Gold position if you had one open as this is denominated in USD and the interest rate received for this is also derived from the banks.

 

To be clear, this is not an IG charge, the interest received is a rate that we receive from the banks who provide the liquidity on FX and we pass on this charge with a small IG charge applied (which is the same percentage every night). 

 

Factors that could be seen to be influencing this significant move, are adjustments in balance sheets at the end of the year. This strong sentiment in holding USD positions at the end of the year and less liquidity, has assisted a surge in the tomnext rate. You will see from the chart that when this was applied there was a corresponding drop in the currency pair as there was this demand for USD.

 

Whilst I appreciate that this charge is unprecedented and high, this has been seen across the underlying market and not something we could avoid. Put simply this is a factor of the underlying FX market, with all FX traders globally being subject to these charges. If you require any additional information on this please do not hesitate to ask below.

 

EDIT: you can see indicative rates for last night for the majors here, and a worked example here. 

[JamesIG]

Furthermore please note that due to bank holidays in Japan on the 2nd and 3rd January Yen crosses were charged 6 days funding last night. Due to bank holidays in New Zealand and Switzerland on the 2nd Jan these pairs were subject to 5 days funding. The majority of pairs were subject to 4 days funding to account for the 1st Jan bank holiday.

[cate]

Thanks James, I appreciate the reply.

 

Just 3 questions:

 

Is there a table anywhere on the IG site where I can see the new charges? I have an idea based on past experience about what positions aren't a good idea to hold over Wednesday night, for example, and I'd like to update that without having to watch for a few weeks and see what happens! 

 

If there isn't a table I can refer to, could you tell me if these pairs that have become expensive to hold will be expensive in both directions? I mean is it a sort of premium for holding, or is it a straightforward carry where if a long position is charged a heavy interest rate, the corresponding short would yield a positive return? Like the old situation with NZDJPY where you were charged for holding short but paid for holding long.

 

Can you tell me when the next set of overnight charges apply? I think I probably ought to get out of some of my Yen positions before then! Do I need to close before 10 pm on the 2nd of January? Or the 3rd? 

 

Thanks again!

Cate

 

[cate]

Oh, and one last question! Do you expect these new higher rates to last, or is it just a blip for the reasons you mention like low liquidity over the end of year? Thanks!

[JamesIG]

Hi  let me answer a few of your questions ...

---

 Is there a table anywhere on the IG site where I can see the new charges? I have an idea based on past experience about what positions aren't a good idea to hold over Wednesday night, for example, and I'd like to update that without having to watch for a few weeks and see what happens!

---

So I'm going to try and put the latest figures in a table and post this below. Please note that this is almost a one of large charge due to the bank holidays and the end of year as discussed above. This should be up before midday UK time. 

 

---

If there isn't a table I can refer to, could you tell me if these pairs that have become expensive to hold will be expensive in both directions? I mean is it a sort of premium for holding, or is it a straightforward carry where if a long position is charged a heavy interest rate, the corresponding short would yield a positive return? Like the old situation with NZDJPY where you were charged for holding short but paid for holding long. 

---

This should become more apparent once the table is out, but fundamentally there isn't a difference to normal FX overnight funding charges. In some instances you will receive whilst in others you will be charged. Once again the table I'm going to create below is almost a one off due to these high TomNext charges, so it maybe worth contacting us again in a weeks time or so to get a more indicative value for the overnights. 

 

---

 Can you tell me when the next set of overnight charges apply? I think I probably ought to get out of some of my Yen positions before then! Do I need to close before 10 pm on the 2nd of January? Or the 3rd? 

The next charge, which should be back to normal, will be tonight at 10pm. All other things being equal (ignoring bank holidays) would be seen as below, however bank holidays etc will effect this. 

 

Monday 1 day charge

Tuesday  1 day charge

Wednesday 3 day charge ( to take into account the weekend) 

Thursday 1 day charge

Friday 1 day charge

Saturday no charge

Sunday no charge

 

Oh, and one last question! Do you expect these new higher rates to last, or is it just a blip for the reasons you mention like low liquidity over the end of year? Thanks.

---

These should only be for this holiday period, ie. once. They'll return to normal going forwards. 

[cate]

That's so helpful! Thanks, James!

[Guest ppreston1954]

I have never heard of the tomnext rate, nor have I been informed that ludicrous exchange rates might hit specific pairs over holiday periods.. I feel violated and robbed once again. How can they get away with this! I want my money back.

[JamesIG]

---

cate wrote:

That's so helpful! Thanks, James!

---

Hi  - You can see an indication of these rates on this end of year event below. These are indicative and for information purposes only. You can always check your overnight statements for you specific charges. 

 

[uhjt008]

Yes Comby. There is a bit of small print under "Forex Positions" on

https://www.ig.com/uk/spread-betting-cfds-charges

about "Tom-next", it says that it is only levied on Forex Positions but now they say its on Commodities also.

Overnighting from Dec 27 to 28 I paid £33 on a bet on Gold that realised £73

I think from now on I will day trade or not trade.

 

 

[jbtrader]

Will the excessive charges remain into the new year or revert back to the nominal charges we were used to paying?

[JamesIG]

---

jbtrader wrote:

Will the excessive charges remain into the new year or revert back to the nominal charges we were used to paying?

---

So although this is forward looking and speculative, there is nothing to suggest this will continue. It's highly, highly likely that it'll return to normal as this was likely large institutions balancing their exposures and the end of year settlement of FX positions. It'll return to normal...