The daily cost of holding a leveraged CFD position, calculated on the full notional value as a benchmark interest rate plus or minus the broker's spread.
Because a CFD gives exposure to the whole position while you post a fraction as margin, the broker is effectively financing the balance. Longs are charged the benchmark plus a markup, often around 2% to 3% annualised; shorts receive the benchmark less the same markup, which can still be a charge when rates are low.
The charge is on the full notional-exposure, not on the margin, which catches people out. A position ten times the size of the margin posted accrues financing on the larger number every single night, including a triple charge on one day of the week for the weekend at most firms.
This is what makes CFDs expensive for long holding periods and largely irrelevant for intraday trading. A position closed before the daily cut pays nothing.
Example: a $50,000 long financed at 8% annualised costs 50,000 x 0.08 / 365 = $10.96 a night. Held for three months that is roughly $1,000, or 20% of a $5,000 margin deposit.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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