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CFD interest costs

Key features of ASX Listed CFDs

Interest costs can really eat into a portfolio’s performance. If you are using a margin loan to fund a long equity position or if you are trading OTC CFDs, what interest rate are you paying? Funding costs for holding an ASX Listed CFD position are transparent and competitive compared to interest rates charged for similar products.

When buying or selling ASX Listed CFDs, you are trading the economic equivalent of a leveraged position in the underlying share, index or commodity. Instead of paying the full contract value of the underlying instrument, you pay only a small refundable deposit, known as the initial margin. The initial margin can be thought of as a deposit of "good faith" required before a transaction is undertaken. Being leveraged means that you are in effect borrowing the amount of the contract’s value to gain the required exposure.

Interest costs for ASX Listed CFDs consists of two parts:

Contract Interest (CI) being the currency’s relevant overnight cash rate; and
Open Interest Charge (OIC) being 1.5% p.a.

Holders of long ASX Listed CFDs pay the cash rate plus 1.5% p.a. Holders of short ASX Listed CFDs receive the cash rate less 1.5% p.a.

CFD interest cost example

For holders of long (or bought) ASX Listed CFD positions:
Contract interest is paid daily for positions held overnight. The open interest charge is also paid daily for any long positions held overnight. For ASX Equity CFDs, the CI rate is the Reserve Bank of Australia’s (RBA) target overnight cash rate. The OIC Rate is 1.50% p.a. In total therefore, the interest cost for holding a long ASX Listed CFD position is the cash rate + 1.50% p.a.

For holders of short (or sold) ASX Listed CFD positions:
As for long positions, the contract interest is paid daily for positions held overnight, however the open interest charge is received daily for any long positions held overnight. For ASX Equity CFDs, the CI rate is the Reserve Bank of Australia's target overnight cash rate. The OIC Rate is 1.50% p.a. In total therefore, the interest cost for holding a short ASX Listed CFD position is the cash rate - 1.50% p.a.

Example
Imagine there are two traders, Trader A and Trader B. Trader A opens a long position in ASX Equity CFDs and holds the position overnight. Trader B opens a short position in ASX Equity CFDs and also holds the position overnight.

The contract currency for ASX Equity CFDs is AUD therefore the Contract Interest (CI) rate is the RBA target overnight cash rate. For this example imagine the RBA target overnight cash rate is 4.50%. ASX Equity CFDs have an open interest charge of 1.5%.

The interest costs of holding an ASX Equity CFD position of $100,000 overnight can be calculated as:

	Trader with long position	Trader with short position
Contract Interest (CI) Position Value CI per day CI	$100,000 = 4.50%/365 -$12.33	-$100,000 = 4.50%/365 $12.33
Open interest charge (OIC) Position Value OIC per day OIC	$100,000 =1.50%/365 -$4.11	$100,000 =1.50%/365 -$4.11
Total interest costs CI + OIC	-$16.44	$8.22

Risks

ASX CFDs are not suitable for all traders and investors. Before trading ASX Listed CFDs you should carefully assess your experience, investment objectives, financial resources and all other relevant considerations and consult your adviser. In particular you should understand the implications of leverage, additional margin calls and unlimited losses on your investments. Learn more about the risks of trading ASX Listed CFDs (PDF 86KB).