Financing costs for forex trading (OANDA Corporation)

Refer to our detailed write-up on financing costs . The write-up also clarifies the following information:

• How are financing costs affected by settlements in the underlying asset and impact of weekends and public holidays?

• Why are financing costs applied to your account?

• How do financing cost calculations differ for long and short positions?

• Where can you find the financing costs applied to your account?

In the Daily financing cost section of the financing costs write-up, you can select the instrument you want to trade in and the date of reference. The widget will display both the annualised funding rate (including the specific admin fee) and anticipated daily financing cost based on prevailing rates. Additionally, you can also see historic funding rates.

Tomorrow-next refers to the rolling over of a position in the currency markets to postpone delivery. A trader can roll over their position to the next two business days later to avoid taking delivery and holding onto the currency at the same time. Generally, the expected delivery of the asset is two days after any transaction, but this can vary depending on the currencies involved (e.g. one day for USD/CAD). The date of settlement is known as the spot date. Tom-next can be used to extend the trade beyond this date. It enables an overnight position to be extended instead of taking physical delivery of the asset.

Banks in the underlying market trade currencies based on different rates for buy and sell positions. Rates can change daily as they are based on the underlying market price. Tom-next rates are based on interest rate differentials between the two currencies. If the interest on the first currency is higher than the second currency on a long/buy position, then it normally results in a positive funding rate and vice versa (barring some exceptions).

Daily financing charge or credit = size of position x applicable funding rate x [trade duration (in days) / 365] x conversion rate to account currency
      

In the hypothetical example below, we assume the following funding rates (sample rates that don’t reflect the current swap rates):

Instrument	Long funding rate (annual)	Short funding rate (annual)
EUR/USD	-3.00%	+1.60%

The resulting financing cost will vary based on factors explained in the following scenarios:

Scenario 1:

You open a long 100,000 EUR/USD trade at 8:30am ET Wednesday and close it at 3:30pm ET Wednesday. There will be no financing cost because no open position is held at 5pm ET end of day.

Scenario 2:

You open a long 130,000 EUR/USD trade which remains open after 5pm ET Tuesday.

The daily financing cost = 130,000 x -3.00% x 1/365 = -10.68 EUR. 

Thus, a financing charge of 10.68 EUR, converted to your account home currency, is levied on your account. Your account will be charged every day the position is held beyond 5pm ET.

Scenario 3:

You are short 130,000 EUR/USD trade which remains open after 5pm ET Wednesday.

The daily financing for this position is 130,000 x 1.6% x 1/365 = 5.70 EUR. 

However, as this position is held past 5pm ET Wednesday, weekend financing will apply. The total credit received will be for 3 days i.e. 5.70 x 3 = 17.10 EUR. A financing credit of 17.10 EUR, converted to your account home currency, will be applied to the account.