Overnight financing fees CFD are calculated using a simple formula: position size multiplied by the applicable financing rate, multiplied by the number of days held, then converted into the account currency. At the broker OANDA, this formula is explicitly stated in its documentation on financing charges as follows: “trade size multiplied by the applicable financing rate, multiplied by the duration of the trade in days divided by the number of days in the reference period, multiplied by the conversion rate to the account currency.”
This fee applies as soon as a CFD position remains open at the close of the trading day. At OANDA, the threshold used is 5:00 p.m. New York time: any position still open at that moment is treated as held overnight and triggers a financing debit or credit, depending on the direction of the position and the sign of the applicable rate.
Why financing applies to a position held overnight
A CFD (contract for difference) replicates the economic exposure of an asset without the trader physically holding it. Keeping a position open beyond a single day effectively extends, from the broker’s perspective, an implicit financing of that exposure. It is this carrying cost, positive or negative depending on the direction of the position and the currencies involved, that the broker passes on as an overnight financing fee or credit.
This mechanism only concerns holding a position over time. It is entirely separate from the margin required to open a position: margin serves as collateral against the risk of loss, while overnight financing compensates or charges for carrying the exposure from one day to the next.
Where the rate applied on a currency pair comes from
On the foreign exchange market, the overnight financing rate is generally based on the tom-next rate (tomorrow-next), a market reference that reflects the interest rate differential between the two currencies in the pair as well as market expectations about future changes in those rates. The broker tastyfx describes it as follows in its documentation: “Tom-next is the rate used to calculate the financing adjustment when a Forex position is held overnight. It is a standard market rate, derived from the interest rate differentials of the currencies in the pair and market expectations about rate changes.”
To this market rate, the broker generally adds its own commission. At tastyfx, this commission is fixed and disclosed: 0.8% per year, added to the tom-next rate to obtain the financing rate actually applied to the client’s account. This structure explains why two brokers applying the same reference tom-next rate can charge different financing fees: the added administrative commission varies between firms and is not standardized.
Why the rate varies by asset and by broker
The financing rate is never a single value for all instruments. It depends first on the nature of the underlying asset: a currency pair, a stock index, a commodity, or an individual stock do not share the same interest rate references or the same carrying costs. It also depends on the direction of the position, since financing can be a debit for a long position and a credit for a short position, or the reverse, depending on the rate differential between the two currencies or between the asset and its reference risk-free rate.
Finally, it depends on the broker itself, since the administrative commission added to the market rate is set freely by each firm. It is this commission, not the market reference rate, that represents the main point of comparison between brokers for a trader who regularly holds positions over several days.
What this mechanism is not
Overnight financing should not be confused with the protective rules set by ESMA for retail clients. These measures govern the maximum leverage allowed when opening a CFD position, tiered according to the volatility of the underlying asset: 30 to 1 for major currency pairs, 20 to 1 for non-major pairs, gold, and major stock indices, 10 to 1 for other commodities and non-major indices, 5 to 1 for individual stocks, and 2 to 1 for cryptocurrencies.
These leverage caps, like the ESMA margin close-out rule set at 50% per account, aim to limit the client’s risk of loss, not to set a financing rate. No ESMA text determines or caps the overnight financing fees charged by a broker: this rate remains a commercial variable specific to each firm, built on a market rate plus a commission.
Frequently asked questions
Do overnight financing fees apply to all CFD positions?
Yes, as soon as a CFD position remains open at the closing threshold used by the broker, for example 5:00 p.m. New York time at OANDA. A position closed before that threshold is never subject to this fee, regardless of its size.
Can overnight financing be a credit rather than a cost?
Yes. Depending on the direction of the position and the rate differential between the two currencies or between the asset and its reference rate, financing can be positive for the trader, in which case the account receives a credit instead of being debited.
Why do two brokers charge different fees on the same pair?
Because the financing rate combines a market rate, such as the tom-next rate for Forex, with an administrative commission specific to each broker. This commission is not standardized between firms, which creates fee differences even on an identical instrument.
Does the maximum leverage set by ESMA influence this financing rate?
No. ESMA’s leverage limits only govern the risk taken when a retail client opens a position. They do not set, directly or indirectly, any overnight financing rate, which remains determined by the broker itself.