CFD Finance Rates

CFD Finance Rates - The Full story

The key difference between trading shares versus trading CFDs is the overnight financing that is charged when you hold a CFD position overnight.

CFD Finance – Holding CFD positions overnight

CFD financing is charged when you hold a position overnight and most CFD brokers determine a position is held overnight if you hold the position after 5pm Eastern Standard Time in New York. That works out to be around 7am Australian time. Check your CFD brokers product disclosure statement (PDS) for their exact rollover time.

The CFD Finance calculation – Calculating the daily interest charge

Long CFD position

= (Total CFD position size * (RBA rate + 2%)) / 365

= ($10,000 * (7.25% + 2%)) / 365

= ($10,000 * 9.25%) / 365

= $925 / 365

= $2.53 per day debit

NOTE: Calculating the daily rate can differ in some countries. For example Australia the UK use 365 days in the year and others may use 360 in their CFD Finance calculation. Read the Product disclosure statement of your CFD broker to work out which rate they use.

Therefore to hold a $10,000 CFD position will cost around $2.53 every day you are long.

Accessing Opportunity with CFDs

First and foremost, it is important to know exactly what the costs of doing business are when trading CFDs. Secondly, understand that CFD Finance is simply the cost of doing business and it is a relatively small charge.

Think of CFD financing as the cost to access more opportunity

You see if you had $10,000 in your share trading account then $10,000 is all you could trade, thereby limiting your opportunity in the market to maybe 2 lots of $5,000 trades.

When trading CFDs your $10,000 cash could access considerably more but let’s say $30,000. As a result you may wish to trade 5 lots of $6,000 trades, giving you a greater chance to diversify and most importantly, access greater opportunity.

So think of CFD finance as the cost to access more opportunity, giving you a greater chance of accessing more profits.

CFD Finance for a Short Sell CFD position

Short Sell CFD position

= (Total CFD position size * (RBA rate - 2%)) / 365

= ($10,000 * (7.25% - 2%)) / 365

= ($10,000 * 5.25%) / 365

= $525 / 365

= $1.44 per day credit

CFD Finance changes daily based on market action

CFD Finance charges will differ every day as your position rises and falls with the market.

Day 1: Open CFD trade at $10,000 and position stays steady

Day 2: Position moves into profit and is now worth $10,230 (CFD Finance will now be calculated on this new position size)

Day 3: Market sells off and your CFD position is now worth $9,750 (CFD Finance will now be calculated on this new position size)

Day 4: These daily fluctuations are too much! I’m bailing.

Avoiding overnight CFD Finance charges

If you hold a CFD position intraday by buying after 10am and selling before 4pm on the Australian market, then there will be no CFD Finance charges as you never held the position overnight.

Does that mean Trading CFDs is better suited to
short term Intraday trading?

Not at all. Remember your goal will always be to

• Find a trading system(s) that fits your trading time frame

• Find a trading system(s) that suits your risk profile

• Find a trading system(s) that fits your psychological profile

If that means you trade intraday and avoid overnight interest then fantastic. If you find however, that your average hold for a trade is 35 days and you system(s) are profitable then run with that irrespective of the overnight interest charges. When testing your system(s) allow some room for overnight financing.

Your goal will always be to trade your most profitable trading system over a time frame that fits you. Do not attempt to become an intraday trader just to avoid overnight CFD Finance.

CFD Tutorial
Why trade CFDs?
7 tips for successful CFD trading
View some CFD example trades
ASX hot stocks
The Best Trading books
Portfolio Management software

Disclaimer: Trading Contracts for Difference carry risk where you can lose more than what you start with. View our full disclaimer here.

  Back to Top