Overnight funding charges are the daily interest you pay, or occasionally receive, for holding a rolling spread bet or CFD past the provider’s daily cut-off. They are small for one night but add up quickly over weeks. If you swing or position trade, they belong in your plan alongside the spread and your stop.
Quick answer: what are overnight funding charges?
They are a daily financing cost on leveraged positions held overnight. A typical charge is the benchmark interest rate plus or minus the provider’s markup, applied to the full value of the position and divided by 365. Longs usually pay; shorts may pay or receive. Each provider sets its own terms.
Why overnight funding exists
With a spread bet or CFD you put down a margin deposit, but you gain exposure to the full value of the position. In effect the provider is lending you the rest, and the funding charge is the interest on that loan. Our guide to margin and leverage for beginners explains how that exposure is built.
Leverage magnifies losses as well as gains, which is why the FCA limits retail CFD leverage to between 30:1 and 2:1. Funding is charged on the full position value, not on your deposit, so a small margin can carry a surprisingly large daily cost.
How overnight funding charges are calculated
Most providers use the same basic formula for rolling cash spread bets and CFDs, although the inputs differ:
- Work out the position value: stake per point multiplied by the price at the daily cut-off (for a CFD, the number of contracts multiplied by the price).
- Take the annual rate: the benchmark rate plus the provider’s markup for longs, or the benchmark minus the markup for shorts.
- Multiply the position value by that rate.
- Divide by 365 to get one night’s charge.
For sterling markets the benchmark is usually SONIA, the overnight rate the Bank of England publishes; dollar and euro markets use their own benchmarks. Some providers divide by 360 rather than 365 for non-sterling markets, and markups vary, so always read your provider’s own terms.
Forex positions are different
On rolling forex positions, funding usually reflects the gap between the two currencies’ interest rates, plus a markup. That gap is the same differential behind the carry trade and its interest differentials, and it shifts as expectations change, as we explain in our guide to interest rates and forex.
Worked example: what a hold really costs
This example is hypothetical, and so are the rates. We go long an index spread bet at £2 per point with the price at 8,000. The position value is £16,000. Assume a benchmark rate of 4% and a provider markup of 2.5%, so longs pay 6.5% a year.
One night costs £16,000 x 6.5% / 365 = £2.85. Most providers charge three nights on Friday to cover the weekend, so a full week costs about £19.95. Held for six weeks, assuming the price stays near 8,000, funding comes to roughly £119.67.
Now compare that with the trade. On a £5,000 account we risk £100 with a 50-point stop. Six weeks of funding is more than the whole planned risk, so the target must be far enough away to justify the hold. With an assumed 5% margin, the deposit is £800, while a year of funding would be about £1,040.
| Holding period | Approximate cost | Typical style |
|---|---|---|
| Closed before cut-off | £0 | Day trading |
| 1 night | £2.85 | Short swing |
| 1 week (7 nights) | £19.95 | Swing trading |
| 6 weeks (42 nights) | £119.67 | Position trading |
What about the short side?
A short pays or receives the benchmark minus the markup. With the same 4% benchmark, a short receives 1.5% a year: about £0.66 a night on £16,000. If the benchmark were 2%, the short would pay 0.5% a year, about £0.22 a night. When rates are low, both sides usually pay.
Overnight funding for swing and position traders
Day traders who close before the cut-off usually avoid funding entirely. The cost matters most to those holding for days or weeks, which is exactly what our guide to swing trading for beginners describes. For holds of several weeks or months, see how a position trading strategy holds trades for weeks and months and weigh the cost against the target.
A simple habit helps: before entry, work out one night’s funding and multiply it by the number of nights you expect to hold. If that figure eats a large share of the expected move, the trade needs a bigger target, a smaller size or a shorter plan.
For long holds, some traders use futures-style or forward spread bets instead. These carry no daily funding, but the cost is built into a wider spread and the forward price, and the contract has an expiry. Our guide to futures contracts, expiry and rollover explains how that works.
What the FCA found about funding costs
Funding terms are not standard across the industry. In its multi-firm review of CFD providers’ price and value, the FCA found wide variations in the effective interest rates retail clients paid on overnight funding at different firms. It described overnight charges as a substantial ongoing cost for clients holding positions longer term.
The review also found firms charging funding separately on long and short positions in the same CFD. Holding both sides does not cancel the cost; it can double it, a point we cover in our guide to hedging in forex trading and what it costs.
Common mistakes with overnight funding
- Thinking it is charged on the margin: it is charged on the full position value.
- Forgetting Friday: a position held over the weekend is usually charged for three nights.
- Assuming shorts always earn: with low rates or a large markup, shorts pay too.
- Ignoring rate changes: when the benchmark moves, the cost of every open position moves with it.
- Leaving it out of the journal: total cost includes the bid-ask spread and trading costs as well as funding.
Frequently asked questions
When is overnight funding charged?
It is applied to positions still open at the provider’s daily cut-off time, which varies between firms. Close before the cut-off and no funding is charged for that day.
Do short positions receive overnight funding?
Sometimes. A short is credited only when the benchmark rate is higher than the provider’s markup; otherwise it pays a smaller charge than a long. Short shares may also carry a separate borrowing charge.
Why is my funding charge different every day?
The charge is based on the price at each day’s cut-off and on the current benchmark rate. As either moves, the daily figure changes.
Can I avoid overnight funding charges?
You avoid them by closing before the cut-off, or reduce them by trading smaller size or using forward-style contracts with no daily funding. For longer holds, the honest answer is to budget for them.
Next steps
Funding is one of the costs a full risk plan should cover; see our guide to building a rules-based risk model for trading. If you are still choosing a product, compare spread betting vs CFDs and their differences.
Planning holds, costs and risk is part of our price action trading course, and the basics section is free to start.
This article is for education only and is not financial advice. Trading leveraged products such as CFDs and spread bets carries a high risk of losing money.
