What is the financing fee for CFD?

Financing in the context of CFDs (Contracts for Difference) involves the calculation of interest premiums or payments based on the duration and direction of a position held. For positions that are held overnight and are considered long (i.e., anticipating a price increase), an interest premium is charged. This premium is typically structured as a percentage added to a reference rate.

The reference rate serves as the benchmark for calculating the interest premium. It could be a widely accepted market rate or a rate specific to the underlying asset being traded. The exact reference rate used varies across platforms and might be disclosed in the contract specifications or trading conditions.

The interest premium for long positions is typically calculated by adding 2 to 3% to the reference rate. This additional percentage reflects the cost of financing the position overnight and compensates the CFD provider for the risk of lending funds.

Conversely, for short positions (where traders anticipate a price decrease), the interest is paid to the trader rather than charged. This interest payment is based on the reference rate minus 2 to 3%, providing an incentive for taking on the risk of short selling.

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