How it works
For long positions, the trader pays a financing rate equal to a benchmark (typically the relevant overnight rate plus a broker spread) on the notional minus the margin posted. For short positions, the trader receives the benchmark on the notional minus margin, minus a broker spread. Net carry can be positive on shorts if benchmark rates exceed the broker spread. Index and commodity CFDs use a similar formula with adjustments for the underlying’s funding cost. For currency pairs, the financing equals the interest-rate differential.
Example
A trader holds a $100,000 long EUR/USD position with 5 percent margin ($5,000). If the overnight rate is 5.3 percent (USD funding) and EUR pays 3.5 percent, the daily financing = (5.3 − 3.5) / 360 × $100,000 = about $5 per day debit. Held for 30 days, that is $150, or 3 percent of the $5,000 margin. On a short position, the trader instead receives the differential. For triple-day rollovers (Wednesday for FX, accounting for weekend), the financing is multiplied by 3.
Why it matters
Overnight financing turns a profitable short-term thesis into a loser if held too long. Carry trades (long high-rate, short low-rate) are profitable when nothing else moves. Always check the financing rate against the expected holding period: a one-day trade ignores it, a six-month trade is dominated by it. Some brokers charge financing even when markets are closed (Saturday and Sunday rollover); compare specifications before committing capital.
