Why commodity financing costs vary? OANDA Europe Limited

Pricing on commodities for future delivery can vary dramatically depending on changes in the “cost of carry” (including storage costs and interest rates), and future expected supply and demand.

At OANDA we price our commodity (including copper , platinum and palladium) CFDs by taking the relevant underlying futures contract, and then applying a premium or discount rate (called the "basis rate"). When a futures contract is near its expiry, the basis rate for the next contract is calculated using the prices of the expiring contract and the next contract. The application of this basis rate to the CFD price results in our CFD price converging with the active futures contract price as the active futures contract approaches its expiration date. This is because our commodity prices do not have an expiry date.

The time at which we do this will vary depending on the market activity and liquidity in the expiring versus the new contract but is generally in the week approaching the expiry. This is when the funding rate used to calculate financing costs will change for our CFDs. For more information about OANDA’s financing costs, view our financing costs page.

The financing cost applied in respect of a commodity CFD trade at the end of the trading day (5pm ET) is intended to offset the price movements created by this pricing methodology, and as such could be a credit or debit depending on whether you are long or short and whether the price movement is positive or negative, and the impact of the admin fee.

The relationship between the expiring and next future contracts prices will affect whether the funding rate being applied to a position is positive or negative. In unusual market conditions, the relationship can fluctuate significantly and even invert, as was the case with Brent crude oil in the first quarter of 2020.

The extreme change was due to a glut of oil supply and reduced consumer demand caused by COVID-19 and an aggressive supply-side price war between Saudi Arabia and Russia (leading to higher storage costs as the availability of storage became scarce).

The result of this was that as OANDA moved to pricing based on the next futures contract, the funding rate changed significantly.

As a reminder, financing costs (excluding the admin fee) are offset by movements in OANDA’s price for commodity CFDs, including copper , platinum and palladium.

You can view estimated funding rates for today as well as the funding rates for the last 7 days on our financing costs page. Please note that rates for today are not final until 5pm ET and are approximate only.