Overnight fee (premium)

What is the overnight premium?

The overnight premium, also known as the overnight fee, is the interest that may be applied to holding an overnight position and is particularly applicable to contracts for difference (CFD). The interest is calculated on a daily basis based on the contract value. If you hold short Position, you may earn interest, whereas if you hold long Position you may have to pay that interest.

Where have you heard of the overnight premium?

If you have ever traded CFDs, you should have heard of the overnight premium. If you buy CFDs (I. E. Buy short), you only have to pay the transaction value margin. In essence, you borrow the remaining funds from the broker to buy the investment and pay interest on the financing. If you sell CFDs (I. E. Short selling), you will receive interest income from the broker, but short selling is a high-risk trading strategy.

What you need to know about the overnight premium...

If you hold a long CFD position, the interest rate is usually calculated on a margin of about 2-3%, which is higher than the overnight rate charged by the central bank. If you take a short position, you will receive interest of about 2-3% below this reference rate. A premium is a fee other than the commission charged by a broker for an open or closed position.

The following is an example of calculating the overnight premium for a long position in a CFD:

• Calculate financing costs based on the daily reference rate (i.e. London Interbank Offered Rate of 0.5%) plus broker premium (i.e. 2%).
• The total face value of the contract for difference (e.g. $50000) multiplied by the financing fee (2.5%).%）.
• The result obtained ($1250) is divided by 365 to obtain the daily premium fee ($3.42).

Through CFDs, investors can take advantage of trading opportunities that they might otherwise lose by investing without funds. Overnight premiums, on the other hand, can translate into returns on long positions, especially in the case of longer-term holdings.