Are CFD financing rates low at FBS as of October 2023?
We have good news! CFD financing rates are overall low at FBS, based on the rates for four different CFD products.
- The financing rate is a particularly important cost element of CFD trading if you are planning to hold your position overnight.
- It is a time-sensitive charge: the longer you hold your position, the higher this trading cost will be.
- Brokers in general charge different financing rates for different types of underlying assets.
- We consider CFD financing rates at a broker low if the rates on four different assets we examined add up to be low on average (see table below), compared to other CFD brokers.
- Keep in mind that there are other fees, such as non-trading fees, involved in your total trading cost.
So if you are looking for a broker offering CFDs with low financing rates (also called overnight fees), FBS is a great choice. If you are an experienced CFD trader and are aware of the risks, feel free to just go to FBS and start trading. If you are not sure what financing rates are, read on; we will break it down for you, and show an example.
75.2% of retail CFD accounts lose money
What are the CFD financing rates at FBS?
BrokerChooser's analysts have reviewed over a hundred brokers. They have calculated an average for the CFD financing rates of these brokers by checking the financing rates for four key CFD products. FBS's CFD financing rates are overall low, compared to the average of the other brokers our analysts have checked.
Here is an overview of the financing rates at FBS for the four CFD products (2 stock, 2 stock index) that we checked, compared to the financing rates at the closest competitors of FBS:
CFD financing rate class
Apple CFD financing rate
Vodafone CFD financing rate
S&P 500 CFD financing rate
Euro Stoxx 50 CFD financing rate
Data updated on October 24, 2023
What is the financing rate for CFDs?
You might have heard it being called a swap fee, or overnight rate, but it means basically the same thing. It is one of the key costs of CFD trading. To recap, CFD is a financial instrument which offers a way to leverage your investments and access a wide range of assets without actually having to own any of them.
While trading CFDs, you can open your position with money borrowed from the broker (leverage). If you hold the position open for more than a day, the broker will charge you a cost for it. For this borrowed money, you have to pay interest (or, in some cases, you can also receive interest). This brokerage fee is called the financing rate.
- Financing rates can be either positive or negative, depending on whether you are long or short on the CFD. If you hold a long position overnight, you are essentially borrowing funds from the broker to buy the underlying asset. In this case, you will pay the financing rate, which is typically a combination of the benchmark interest rate of the currency in which the asset is denominated and an additional fee charged by the broker.
- On the other hand, if you hold a short position overnight, you are essentially selling the underlying asset but you do not receive the proceeds in cash that is why you receive the financing rate. The amount you get will depend on the benchmark interest rate of the currency in which the asset is denominated and the fee charged by the broker. If the benchmark interest rate is lower than the broker's overnight fee, you may receive a negative financing rate, meaning that you will pay interest on the asset that you have sold.
Financing rates are usually closely linked to overall benchmark interest rates. This means that if interest rates are high, financing rates will also be higher, so you are likely to pay more overall in financing rates than in a low-interest economic environment.
Contrary to the spread and the commission, which are one-time fees, this trading cost adds up over time: the longer you hold your position, the larger your financing cost will be. So design your trading strategy accordingly!
How are CFD financing rates calculated?
Financing rates vary depending on your broker, what asset you are trading CFDs in, and what currency they are traded in. Here is an example of how your financing rate might be calculated when trading of Company X stock CFDs!
Let's say that you want to trade CFDs on the stock of Company X, which is listed on the New York Stock Exchange (NYSE). You decide to short (sell) 1,000 shares of Company X at a price of $50 per share, with a total position size of $50,000.
Your broker's overnight fee for NYSE-listed stocks is 3.5% annually, and the benchmark interest rate for the USD currency is 5% per year. Assuming that there are no dividends or other charges, the financing rate for your short position would be calculated like this:
- Calculate the notional value of your position: 1,000 shares x $50 per share = $50,000.
- Calculate the daily financing charge (as it is a short position and the benchmark rate is higher than the broker's fee, it is a “negative” charge, you will receive this amount): $50,000 x (5% - 3.5%) / 365 = $2.05.
- Multiply the daily financing charge by the number of days that you hold the position overnight: e.g., for 5 days it would be $2.05 x 5 = $10.25.
In this example, your financing rate (i.e. the amount you receive) would be $2.05 per day, for holding a short position overnight. But remember, financing rates can vary depending on the broker, and the asset being traded.
What are the other CFD fees?
- The key cost of CFD trading is the spread, which is the difference between the bid price and the ask price of the CFD. It is essentially the cost of trading, and it is paid to the broker. The spread the brokers set can vary depending on the volatility of the underlying asset and market conditions.
- Some brokers may also charge a commission on CFD trades. This is typically a percentage of the value of the trade. Some brokers might offer a wider spread and not charge any commission.
- Don't forget the non-trading fees either! These are not directly linked to the trade you make, and can vary based on the type of account you have, and which broker you have signed up with. These charges may include withdrawal/deposit fees, conversion fees and inactivity fees.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.2% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. .
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