Why IG is charging additional Overnight fees?

[Guest shawnIG]

There was two potions of overnight charges in my account​ regarding my recent position in shorting "ProShares VIX Short-Term Futures ETF" with position size of £-1,959.94.

 

The first potion was the short interest charge (£0.1 per night), which I understand from your calculation in https://www.ig.com/uk/learn-to-trade/overnight-funding.

 

But I received another bigger amount charge (£0.25 per night) which I don't expect:

"Stock Borrowing for US/Can shares 16/01/18"

 

Can you please explain why you charge additional fee on top of short interest and how you calculate them?

 

Thanks,

shawnsuen

 

[JamesIG]

Hi Shawn - When you are shorting stock there are two factors to take into consideration, both the overnight charge to main the leverage position (which basically boils down to a charge paid to borrow cash from IG to maintain the fully leverage sized whilst only requiring say, 5% margin), and the the borrow charge.

 

When you sell a stock you basically borrow it from a broker to sell at the current market price. If the market moves in your favor you aim to buy back at a lower price and then profit on the price difference. There is, however, a borrow charge issues by the broker to borrow the stock or ETF. 

 

The good thing about ETFs is that generally there is an 'inverse' which will track the downside movement in the same asset. I am unsure if there is for this particular one (and unfortunately I can't suggest or find an alternative as this would be financial advice) but if you wanted to have a look into this please check out our market screener. 

[Guest shawnIG]

Hi James,

 

Thanks for your explanation.

 

How can I see the historical and current borrow rates IG charges to the product I shorted ("ProShares VIX Short-Term Futures ETF")?

 

I can’t see these data anywhere in either IG trading platform or website. I hope IG is keeping these charges to be transparent instead of hidden.

 

Thank you,

Shawn Suen

 

[JamesIG]

Overnight borrow charges are actually variable basis the underlying market, and therefore not projected online (in the same way as the TomNext values when dealing FX overnight). You can however give us a call or drop us a message if you wish to know what a particular stocks overnight borrow charge would be to short an equity. These charges should be transparent and quoted on every overnight statement. 

[Guest shawnIG]

Hi James,

 

Many thanks for your explanation. I have another question regarding how your borrow costs are calculated.

 

My current borrow cost is £0.25 per night in the spot price of $22.5.

 

Say after half an year, spot price drops to $10. At that time, will the borrow cost still be £0.25 per night? Or, the borrow cost will be recalculated by the future spot price, which will be around 0.25*10/22.5 = 0.11?

 

It is in the assumptions that borrow rate does not change, and the number of shares does not change.

 

Thank you very much again,

Shawn Suen

[JamesIG]

So short answer - yes. The overnight borrow charge as set by the underlying market is percentage based and therefore will be effected by the prevailing price at the time. For example on this ETF...

 

Price = 22.20

Borrow at this time = 4.8%

Over number of days = 365

 

 

So at a current market price of 2220 would give...

2220 x 4.8% / 365 = 0.29

 

...whilst a market price of 1110 would give

1110 x 4.8% / 365 = 0.15

[Guest Douglas]

I don’t fully understand why there is an overnight charge for short positions. I understand that you need to borrow money to buy the stocks, but the nature of selling short is you then you sell the stocks immediately on the market.

Is the money received for the sale offset against the original amount “borrowed’? Does the overnight charge reflect this?

Thanks,
Douglas

 

[CharlotteIG]

On 19/01/2021 at 07:36, Guest Douglas said:

I don’t fully understand why there is an overnight charge for short positions. I understand that you need to borrow money to buy the stocks, but the nature of selling short is you then you sell the stocks immediately on the market.

Is the money received for the sale offset against the original amount “borrowed’? Does the overnight charge reflect this?

Thanks,
Douglas

 

Hey,

When you are shorting a stock via a DFB spread bet or cash CFD, you will incur a borrow charge. The borrow charge will be accounted for in a daily cash adjustment applied to your account. The charge varies according to the stock, is notified to us by our brokers or agents and includes a 0.5% administration fee. The borrow charge, and the ability to hold a short position, can be changed at short notice. To determine whether a borrow charge applies and if so, what the charge is, call our dealers in advance of betting/trading.

This isn't a charge IG have created it is passed on from our brokers/ agents. 

All the best