Brokerage & Interest
Compared to brokerage fee you pay when you trade with your regular stock broker, commission charges, otherwise known as brokerage, when trading CFDs are relatively cheap. Brokerage will vary depending on the type of CFD.
If you hold a long share, index or sector CFD position overnight you will incur a financing charge which will reduce your profit or increase your loss. The amount you pay is based on the current ‘overnight rate’ plus a premium and is calculated on the full notional value of the position. It is usually deducted from your account on a daily basis.
If you hold a short share, index or sector CFD position overnight you will be credited a financing rate which will increase your profit or reduce your loss. The amount you receive is based on the current ‘overnight rate’ less a discount and is based on the full notional value of the position. It is usually paid to your account on a daily basis.
Let’s take a look at an example for both a long and short position of 400 NAB Shares which are worth $34. We’ll presume that the current ‘overnight rate’ is 3% and the premium/discount is 2%, making our interest rates long positions 5% and for short positions 1%. The interest paid and received on our CFD positions would be:
| 400 x $34 x (5%/365)
= $1.86 per day interest charged
| 400 x $34 x (1%/365)
= $0.37 per day interest received