Many brokers structure cash CFDs so there’s no fixed expiry, but they apply overnight funding charge as daily interest adjustment when positions are held past broker’s cutoff time. Futures CFDs have expiries and typically get rolled to next contract. Understanding these mechanics prevents surprises around costs and position continuity.
Cash CFD Overnight Funding
Overnight funding is a daily interest fee applied to cash CFD positions held past a broker’s specific daily cutoff time. While instruments like futures and forwards typically do not incur these daily interest charges, they often feature wider bid-ask spreads to compensate.
The process for how to trade CFDs with cash contracts involves automatic daily adjustments based on the direction of the position and prevailing interest rates. Typically, long positions incur funding charges, while short positions may receive credits—though many brokers apply a service fee that can result in a net charge for both directions.
The daily cost of carry is generally derived from four primary factors:
- Benchmark Interest Rates:Calculations usually start with an interbank rate, such as the Secured Overnight Financing Rate (SOFR) or the Euro Short-Term Rate (€STR), plus or minus a broker-specific margin.
- Position Direction:Long positions generally pay the benchmark plus a margin, whereas short positions may receive the benchmark minus a margin.
- Notional Value:Unlike commissions, funding applies to the full market exposure of the trade, not just the margin deposited.
- Daily Accrual:The adjustment is applied to the account balance for each day the position remains open.
Concrete example shows the cost:
The impact of these costs becomes clearer when examining a concrete example. A $10,000 long stock CFD position with a 5% annual funding rate results in a daily cost of approximately $1.37 ($10,000 × 5% ÷ 365 days). While this appears negligible in the short term, the cumulative effect over 30 days is $41, and over three months, the cost reaches approximately $123.
These charges accumulate regardless of the price movement of the underlying asset. For long-term participants, this creates a “negative carry” environment, where the position must appreciate significantly just to offset the ongoing cost of the leverage provided.
Cash CFD Holding Period Economics
The overnight funding makes cash CFDs expensive for long-term holds. Short-term trading avoids substantial funding accumulation. Longer holds face mounting costs that must be overcome through position gains.
Breakeven analysis reveals when funding becomes prohibitive:
- One-day hold:Minimal funding impact, perhaps 0.01-0.02% of notional
- One-week hold:Funding around 0.10% of notional, manageable for most strategies
- One-month hold:Funding approaching 0.40-0.50% of notional, material cost requiring consideration
- Three-month hold:Funding reaching 1.25-1.50% of notional, significant hurdle to profitability
The cost structure makes cash CFDs suitable for days or weeks, questionable for months, and generally inappropriate for years. Stock ownership makes more sense for long-term positions.
Short positions face different economics. Receiving funding credit instead of paying charge can make short stock CFDs more attractive than short selling actual shares which incurs borrow costs.
Futures CFD Expiration
Futures CFDs have defined expiry dates matching underlying futures contracts. Index CFDs might expire quarterly. Commodity CFDs might expire monthly. The expiry schedule follows standard futures market conventions.
As expiry approaches, brokers handle open positions through automatic rollover or requiring manual closure. The mechanics vary by broker but follow common patterns.
Most brokers provide notice several days before expiry. The notice specifies rollover date and whether rollover is automatic or requires action. Reading broker documentation prevents unexpected position closures.
Automatic Rollover Process
One broker help example describes rollover on expiry date of futures CFD as automatically moving open positions to next available contract. An adjustment occurs based on price difference between old and new contract plus spread cost.
The rollover mechanics involve:
- Closing old position:Current contract position closes at prevailing market price
- Opening new position:Equivalent position opens in next contract month at its market price
- Price adjustment:Account credited or debited for difference between contracts
- Spread cost:Broker charges spread on both closing old and opening new position
- Automatic execution:Happens without trader intervention on specified rollover date
The price difference between contracts, called contango or backwardation, affects rollover cost:
- Contango:Next contract trades higher than current contract. Long positions pay the difference. Short positions receive it.
- Backwardation:Next contract trades lower than current contract. Long positions receive the difference. Short positions pay it.
For positions in contango markets, rolling creates negative carry similar to overnight funding. Each roll requires paying the premium of future contract over spot price.
Rollover Costs and Frequency
Rollover frequency depends on contract type. Monthly contracts roll twelve times annually. Quarterly contracts roll four times annually. The frequency affects total rollover cost impact.
Example rollover cost calculation:
Index futures CFD with 0.5% contango (next contract 0.5% higher than current) requires paying that difference at each roll. For quarterly rolls, that’s approximately 2% annually. For monthly rolls, approximately 6% annually.
These costs compound with spread charges on both sides of rollover. If broker charges 0.1% spread entering and exiting, each roll costs additional 0.2%. Twelve annual rolls add 2.4% in spread costs alone.
The combined cost of contango and spreads can reach substantial percentages annually for frequently rolled positions in futures CFDs. This hidden cost often catches beginners by surprise.
Manual vs Automatic Rolling
Brokers offer different rollover options. Understanding choices prevents unwanted outcomes.
Automatic rollover: Position automatically transfers to next contract on specified date. Trader doesn’t need to take action. Convenient but provides no control over rollover timing or price.
Manual rollover: Trader must close current contract and open next contract manually before expiry. Provides control over exact timing and execution price but requires attention to expiry calendar.
Forced closure: Some brokers close positions automatically without rolling if trader doesn’t act. This realizes any gain or loss and eliminates exposure. Must reenter manually if wanting to maintain position.
The choice affects costs and control. Automatic rolling ensures position continuity but accepts whatever rollover cost exists. Manual rolling allows choosing optimal timing but requires active management.
Practical Strategy Selection
Matching product to holding period:
- Intraday trading:CFDs work well, no overnight funding incurred, natural fit for leverage
- Swing trading (days to weeks):CFDs viable, funding costs manageable, rollover not yet issue for cash CFDs
- Position trading (weeks to months):Cash CFDs become expensive from funding, futures CFDs face rollover costs, stocks generally better
- Long-term investing (months to years):Stocks clearly superior, CFD costs accumulate to unreasonable levels
The product selection decision should consider total cost of holding over intended timeframe, not just initial execution costs.
Cost Transparency
Understanding all costs before trading prevents disappointment:
- CFD total costs:Spread at entry, overnight funding daily, spread at exit, potentially rollover costs for futures CFDs
- Stock total costs:Commission at entry, no ongoing holding costs, commission at exit, potentially margin interest if using leverage
Calculate breakeven including all costs. A CFD position paying 5% annually in funding costs needs to gain 5% just to break even before considering spreads and profit targets.
Stock position with no holding costs only needs to overcome entry and exit commissions. The cost difference grows larger as holding period extends.
Making the Choice
Position rolling versus automatic settlement represents core difference between derivative and security ownership. Neither is universally better. Each fits different use cases.
Choose CFDs when leverage, short-term trading, or short-selling ease is priority and funding costs can be absorbed in short timeframe. Choose stocks when long-term ownership, cost minimization, or dividend collection matters more than leverage.
Understanding expiration mechanics prevents surprises and allows accurate cost-benefit analysis before entering positions.
