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Today we’re going to discuss two topics that could be of great importance for some online traders. Rollover and overnight financing are essentially costs that are involved in online CFD trading and many traders are either unaware of their existence, or don’t quite get how they work. We know, discussing costs is not something many online trading sites like to discuss, but we here at iFOREX believe in transparency, and we feel that people who trade with us should have a thorough understanding of all the aspects of trading CFDs online.
Are you ready to do some learning? Don’t worry, we’ll keep it clear and short.
Before we explain what overnight financing is, we need to quickly revise another concept: CFD, which stands for Contract For Difference. When you trade shares, commodities, indices, ETFs and currencies in the form of CFDs, you are not buying the actual products, but rather ‘contracts’ that track the product’s price. Confused? Here’s a quick example.
When you invest in crude oil in the form of CFDs, you don’t actually need to buy a barrel of oil. Instead, you buy contracts – each for the price of a single barrel of oil. Similarly, when you buy gold CFDs, the price of each CFD equals the price of an ounce of gold.
Still unclear? Stop by our What is CFD page for a thorough explanation. Clear? Great, let’s continue.
Now that we know what a CFD is, let’s discuss what happens to these contracts at the end of each trading day. Yep – in many cases the trading day can have a beginning and an end, depending on the CFD instrument you trade. For example, when you trade Google share CFDs, the trading day is similar to the trading hours at the New York Stock Exchange. When you invest in Honda share CFDs, the trading hours are similar to those at the Tokyo Stock Exchange. Some CFD instruments, like currencies, are traded 24 hours a day, but even they close during the weekend.
Want to know which CFD instrument is traded when? Visit our Trading Conditions page.
So, what happens at the end of each trading day? The CFDs you own become subject to a process called ‘overnight financing’. This means that an interest adjustment is applied in order to keep your deal open ‘overnight’ or, to be more accurate, during the specific market’s closure period. Because interest can move both ways, the adjustment can be either positive or negative, depending on the direction of your deal (‘Buy’ or ‘Sell’) and the interest rates of its underlying assets.
What happens on the weekend? Well, on Fridays, overnight financing is three times the daily value, since it covers the entire weekend.
Overnight financing is relevant to all of our CFD instruments - shares, commodities, indices, currencies and ETFs – but it’s not calculated in the same way. The formula used to calculate overnight financing is different between the types of CFD instruments, and it also changes between ‘Buy’ and ‘Sell’ deals. Are we going to show you all of these formulas here? We will not – math gives us migraines. If you really want, you can find the actual formulas on our Trading Conditions page, according to the different instruments.
In a way, rollover sounds a bit like overnight financing, but it deals with futures contracts. What does that mean? Well, for starters, rollover is only relevant to two types of CFD products – commodities and indices. When you open CFD deals on products such as coffee or oil, you are essentially buying a limited time contract – one that has a preset expiration date. So, what happens if this expiration date comes but you haven’t closed your deal yet? That’s right – your deal is “rolled over” to the next contract’s expiration date. This means we essentially renew your deal for you, so it remains open.
This is the same deal, but a new contract – so the P/L (that’s short form for your open deal’s Profit or Loss) will take into consideration any rate difference between the old contract and the new one. It will also include an additional spread.
In addition, any limit order you may have (Stop Loss, Take Profit, etc.) will be adjusted to the rate of the new futures contract. What do we mean by ‘adjusted’? It will be raised or lowered according to the difference between the rates of the new and old contracts.
If the new contract is up by 20 pips, the Stop Loss will also be automatically raised by 20 pips.
For more information regarding market orders, check out our What is Stop Loss page.
Keep in mind that there might be higher margin requirements during rollovers.
Still confused about the differences between overnight financing and rollover? Check out this quick comparison below.
What is it for?
Keeping your CFD deal open overnight
Renewing your CFD deal passed its expiration date
|On which CFD instruments?
|All (Shares, commodities, indices, currencies and ETFs)
|Most commodities and indices
|What happens to my limit orders?
|Where will I see it?
|In the account statement
|In the deal’s P/L
|Where can I find the details regarding each deal?
|Click on the + sign in the OFH column of the Open Deals table
|Click on the + sign next to the P/L (Profit/Loss of the deal)
The rollover is a great tool to have better revenues when the value of a commodity or of an index is going up. A CFD has an expiration date, and the rollover feature lets you keep rolling with it as its value goes up. The stop loss and take profit values will be adjusted accordingly, so it's important to keep an eye on that or minimize risk. You can see the deals' profit/loss to see if you want to rollover further.
It's similar to overnight financing which is automatic and applies to all kinds of CFDs during the weekend and holidays. That will just de facto freeze their values while trading for it is closed. Still, it's better to check on it too in your account statement.
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