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For each of your open positions (or active trades), a financing charge is calculated. An indication of the financing charge that you will either pay or receive on an open position can be calculated with the help of our Financing Calculator.
When the financing calculator shows a negative financing rate, you pay financing. When the financing calculator shows a positive financing rate, you receive financing.
Financing is either credited to, or debited from, your trading account
- Immediately when trade is closed; or
- At 1600 CET daily for all open positions
If the overall financing charge is positive, you will receive a payment from marketindex. If negative, you will make a payment to marketindex.
How the financing charge is built up:
There are two elements to the calculation of the financing charge for a trade. The reasoning behind can be explained with the following examples:
When you open a EUR/USD long position, you actually buy EUR (reference item) and sell USD (currency). This creates a long position in EUR and a short position in USD. Therefore the financing for this position is calculated over a long position in EUR and a short position in USD.
The same logic can be applied to other underlyings. When you open a mi AEX Long position, you create a long position in AEX (reference item) and a short position in EUR (currency) and the financing charge is calculated accordingly. The reasoning behind this is that you need euro’s to create and AEX long position. On a mi AEX short position the financing charge is calculated as if you hold a short position in AEX and a long position in EUR.
Please note that if you buy (go long) it does not necessarily mean that financing will be positive. The financing charge varies on the Bid(sell)/Offer(buy) financing rates for both the reference item and the currency.
- The financing receivable by you:
- on the Reference Item notionally bought on a long trade
- on the Currency notionally received when a Reference Item is notionally sold on a short trade
- The financing payable by you:
- on the Currency notionally paid when a Reference Item is notionally bought on a long trade
- on the Reference Item notionally sold on a short trade
The total financing charge for a trade is equal to the difference between the financing receivable and the financing payable by you. Please note that the financing receivable can be negative so that you actually pay and the financing payable can be negative so that you actually receive.
Futures charges
marketindex charges you net 2% annually when holding open futures based positions. The overall financing charge offsets the discount rate leaving a net charge of -2%. The discount rate that is offset in the financing charge is not a cost, but a correction that needs to be applied in order for marketindex to be able to provide you with a smooth continuous price. See the section below on Discount Rate for a more detailed explanation of what the discount rate is and how it is offset within the total financing charge.
FX charges
marketindex charges you a 2% spread on the overnight interbank rate when trading FX. This is implied by the overnight rate -/+ 1% for our Bid/Offer which means you receive 1% less than banks do and pay 1% more than banks on all rates.
Formulae for calculating the total financing charge:
Total Financing Charge
where,
For the formulae shown below, the “Underlying” (e.g. mi AEX) and “Duration” type for these rates are to be selected from the Financing Calculator where the “Duration” can be Daily, Weekly, Monthly or Yearly.
Please note that the financing charge applied to your marketindex trading account is always based on the yearly financing rates. The daily, weekly and monthly rates are only used for illustrative purposes.
No of Seconds in a Year (equivalent to 365 days in a year) = Yearly Duration = 31536000
No of Seconds in a Month (equivalent to 12 months in year) = Monthly Duration =
2628000
No of Seconds in a Week (equivalent to 52 weeks in year) = Weekly Duration = 606462
No of Seconds in a Day (equivalent to 24 hours in a day) = Daily Duration = 86400
Financing Formula:
where,
Long Trade
Short Trade
You will need to obtain the following rates from the Financing Calculator in order to perform the calculation:
- For long trades – the Reference Item bid rate (Rb) and the Currency offer rate (Co)
- For short trades – the Currency bid rate (Cb) and the Reference Item offer rate (Ro)
Component Definitions:
If you assume that you will be opening and closing your trade at the same price (Pm = Po) you can simplify the Financing Formula displayed above. By rearranging the Financing Formula we can replace [(Rb) – (Co)] with a Long Financing Rate (Fl) for a Long trade and we can replace [(Cb) – (Ro)] with a Short Financing Rate (Fs) for a Short trade.
Therefore you will be able to use the following formula:
Long Trade
Short Trade
You will need to obtain the following rates from the Financing Calculator in order to perform the calculation:
- For long trades – the Long financing rate (Fl)
- For short trades – the Short financing rate (Fs)
Component Definitions:
Please note that the Simplified Financing Formula is not applicable for FX pairs.
Note
- If you are calculating financing for an FX pair, for example a EUR/JPY trade,
“Pm” for the purpose of calculating the financing applying to the first currency
of the pair is one “1” and for the second currency of the pair is the price (i.e.
the exchange rate) at which the trade was opened. For example, assume a Long trade
of 50 units of EUR/JPY at a price of 115 per unit. When calculating:
- Financing receivable by you (Fr) on the long EUR position, Pm = 1 EUR
- Financing payable by you (Fp) on the JPY position notionally sold, Po = 115 JPY
-
See tables below for which marketindex Price (Bid or Offer) to use and which FX conversion rate to use when converting financing charges into your account currency at the time financing is applied to your account:
For Long Trades please use the below:
Long Trade marketindex Price FX Conversion Rate
into Account CurrencyRb = positive Pm = marketindex Bid Price Xr = Bid Rate Rb = negative Pm = marketindex Offer Price Xr = Offer Rate Co = positive Xp = Offer Rate Co = negative Xp = Bid Rate For Short Trades please use the below:
Short Trade marketindex Price FX Conversion Rate
into Account CurrencyRo = positive Pm = marketindex Offer Price Xp = Offer Rate Ro = negative Pm = marketindex Bid Price Xp = Bid Rate Cb = positive Xr = Bid Rate Cb = negative Xr = Offer Rate -
Financing is performed separately on all open trades and is credited to or debited from your account at everyday at 16:00 CET and/or close of trade.
For example if you open your trade at 19:00 CET on day 1 and close the trade 2 days later at 23:00 CET on day 3, financing will be applied to your account as follows:
- Financing Charge 1 (calculated from 19:00 CET on day 1 to 16:00 CET on day 2) will be applied to your account at 16:00 CET on day 2. “Pm”, “X”, “Xr”, “Xp” at 16:00 CET on day 2 will need to be used to calculate the Financing Charge 1.
- Financing Charge 2 (calculated from 16:00 CET on day 2 to 16:00 CET on day 3) will be applied to your account at 16:00 CET on day 3. “Pm”, “X”, “Xr”, “Xp” at 16:00 CET on day 3 will need to be used to calculate the Financing Charge 2.
- Financing Charge 3 (calculated from 16:00 CET on day 3 to 23:00 CET on day 3) will be applied to your account at 23:00 CET on day 3. “Pm”, “X”, “Xr”, “Xp” at 23:00 CET on day 3 will need to be used to calculate the Financing Charge 3.
- “Pm”, “X”, “Xr”, “Xp” at the time financing is applied to your account will need to be used everytime as shown above in Note 3. Therefore if you are using the Financing Formula or the Simplified Financing Formula to calculate a total financing charge for a trade held open during the first daily financing calculation run at 16:00 CET, then you will be assuming that “Pm”, “X”, “Xr” and “Xp” has not changed throughout the whole duration of your trade.
- If the applicable financing rates (Fl, Fs, Rb, Ro, Cb and/or Co as the case may be) changes during the period “d”, then the calculation set out above should be performed separately for each period within the overall period “d” in respect of which a particular financing rate applies. The value for “Fr” or “Fp” as the case may be will be the aggregate of the separate amounts calculated. For example, if “Fl” is say 4% for 19:00 CET - 23:00 CET and then 4.5% until 16:00 CET on the following day then the relevant financing calculation would be carried out separately for the period 19:00 CET – 23:00 CET using 4% and for the period from 23:00 CET on day 1 to 16:00 CET on the next day using 4.5% and the results of these two calculations would be added to produce the relevant financing charge.
Discount Rate
Why marketindex has to apply a Discount Rate to the futures based underlyings:
The Discount Rate is the rate used to convert a futures price into the present (cash price), taking into account a time component.
With futures based underlyings including indices, bonds and commodities (excluding precious metals - Gold, Silver, Platinum and Palladium as these are based on the spot price) marketindex provides a smooth continual price. Upon futures contract expiry, marketindex uses the next futures contract to continue the pricing. This process of switching contracts used for pricing is known as a roll. Therefore this allows you to open long term positions without the need to transfer your position to new contract months at expiry.
To enable this, marketindex discounts each futures contract price to the present and in doing so creates a theoretical cash price. By applying a discount rate, the cash and futures price converge as the contract moves closer to expiry. This means that at the time of contract expiry (of the futures contract), both the futures and cash price would be equal.
How the discounting process causes inherent gains and losses:
Assuming the futures contract price does not move after contract roll and the marketindex theoretical cash price at contract roll is at a price below the futures price, this implies that anyone who buys on the marketindex theoretical cash price after the contract roll will inherently make a gain as the contract reaches expiry. This is due to the marketindex theoretical cash price converging towards the futures price as explained above. Conversely, anyone who sells on the marketindex theoretical cash price after the contract roll will inherently make a loss.
Assuming the futures contract price does not move after contract roll and the marketindex theoretical cash price at contract roll is at a price above the futures price, this implies that anyone who buys on the marketindex theoretical cash price after the contract roll will inherently make a loss as the contract reaches expiry. Conversely, anyone who sells on the marketindex theoretical cash price after the contract roll will inherently make a gain.
How marketindex offset the inherent gains and losses within the financing charge:
The Financing Calculator displays the ‘Discount Rate’ for the applicable underlyings. If the discount rate is positive as per the calculator, you will inherently make a gain if you go long and a loss if you go short due to the discounting process. If the discount rate is negative as per the calculator, you will inherently make a loss if you go long and a gain if you go short.
To eliminate these inherent gains and losses caused by the price convergence, financing charges are introduced. The financing charges are designed to debit or credit the exact amount needed to offset any gains or losses incurred due to the discounting process, thus leaving a net -2% charge.
How marketindex create their theoretical cash price for futures based underlyings:
For Example:
Fig 1 below shows marketindex performing two AEX future contract rolls and how this
is presented to you as a theoretical cash price.
- Rolling from June futures contract to July futures contract at 15/06/2011 15:55
- July futures price at time of roll to July contract = 335.15 EUR
- marketindex theoretical cash price at time of roll to July contract = 334.90 EUR
- AEX July futures price
- June futures contract expiry at 17/06/2011 15:00
- Rolling from July futures contract to August futures contract at 14/07/2011 15:55
- August futures price at time of roll to August contract = 330.10 EUR
- marketindex theoretical cash price at time of roll to August contract = 331.62 EUR
- AEX August futures price
- July futures contract expiry at 15/07/2011 15:00
- marketindex theoretical cash price
To provide a smooth continual price, the marketindex theoretical cash price must be aligned to the July future at the time of the July contract expiry. marketindex rolls their mi AEX contract on 15/06/2011 at 15:55 shown by , given that at this time the mi theoretical cash price is 334.90 and the price of the July contract is 335.15, marketindex would have to apply a discount rate of 0.91%. This is based on 29.96 days from contract roll until the July contract expiry. See discount rate calculation below:
F (July future price at time of roll) = 335.15
t (time until July future expiry in days / days in a year) = 29.96/365 = 0.08208
=> r (Discount Rate) = [ln(F/S)]/t = ln(335.15/334.90)/0.08208 = 0.91%
With 29.96 days until the July contract expires, as shown by , the mi AEX theoretical cash price must move (335.15 – 334.90) = 0.25 points during this period. The applied annual discount rate of 0.91% will achieve exactly this.
The graph then shows that the July futures price and the marketindex AEX theoretical cash price gradually converge over the next 29.96 days until July contract expiry (15/07/2011 15:00) due to the discounting process.
marketindex then rolls from the July futures contract to the August futures contract at 14/07/2011 15:55, shown by , approximately one day before the July contract expires at 15/07/2011 15:00.
At the time of roll from the July contract to the August contract, the marketindex theoretical cash price is (331.62 – 330.1) = 1.52 points above the August future price. This indicates a new discount rate of -4.66% based on 35.96 days until the August future expires at 19/08/2011 15:00.
Finally the graph shows the marketindex theoretical cash price gradually converging towards to the August future price .
This process is then repeated every time a roll from one future to another future takes place.
Based on Fig 1 above, if you went long on the mi AEX theoretical cash price between points and , marketindex would have had to charge you back the 0.91% discount rate via a financing charge to offset the inherent gain made by price convergence, as explained above. Since marketindex charges you net 2% per annum (as explained in the Futures charges section), you would have been charged a financing rate of -2.91% (-2% - 0.91%) on your long position while held open. Conversely, if you went short during this period, marketindex would have had to pay you back the 0.91% discount rate via financing, resulting in you paying an overall financing rate of -1.09% (-2% + 0.91%).
If you went long on the mi AEX theoretical cash price between points and , marketindex would have had to pay you back the 4.66% discount rate via a financing charge to offset the inherent loss made by price convergence. Since marketindex charges you net 2% per annum (as explained in the Futures charges section), you would have received a financing rate of 2.66% (-2% + 4.66%) on your long position while held open. Conversely, if you went short during this period, marketindex would have had to charge you back the 4.66% discount rate via financing, resulting in you paying an overall financing rate of -6.66% (-2% - 4.66%).
Below is an extract from the Financing Calculator displaying these rates:
Examples
Example 1 Long mi AEX trade using Yearly Financing Rates
Trade: Buy 10 units of mi AEX at 336.44 and close your trade at 360.50 where your trading account currency is EUR
This example uses the ‘Duration Type Selected’ as ‘Yearly’ and uses the below applicable financing rates as at 11/07/2011.
In order to see the relevant financing rates for mi AEX you must select the Underlying as ‘mi AEX’ and the Duration as ‘Yearly’ on the Financing Calculator:
| Yearly Bid Rate | Yearly Offer Rate | BID - OFFER Spread | |
|---|---|---|---|
| AEX (Reference Item) | -1.36% | 0.64% | 2% |
| EUR (Currency) | -0.45% | 1.55% | 2% |
| LONG Yearly Financing Rate | SHORT Yearly Financing Rate | Yearly Discount Rate | Yearly Net Charge |
|---|---|---|---|
| -2.91% | -1.09% | 0.91% | -2% |
This example is for a long position where we have a positive Yearly Discount Rate of 0.91%. This means you would make an inherent gain due to the discounting process. For this reason marketindex would charge you back the 0.91% discount rate, then apply an additional 2% charge (since this is a futures underlying) all via a Long Yearly Financing Rate of -2.91% calculated on the basis of AEX Yearly Bid Rate - EUR Yearly Offer Rate.
You hold the trade for 0.5 days = 43200 seconds. These 43200 seconds do not include 16:00CET and occur in a year with 31536000 seconds.
(Since this example is for a long trade and Rb is negative, the marketindex Offer Price has been used)
(Since Fr is already expressed in the account currency “EUR”)
(Since Fr is already expressed in the account currency “EUR”)
The Total Financing calculation is:
where for a Long trade,
therefore,
Therefore you will pay marketindex financing of 0.1386 EUR on the long mi AEX trade in this example.
Example 2 Long mi AEX trade using Daily Financing Rates
Trade: Buy 10 units of mi AEX at 336.44 and close your trade at 360.50 where your trading account currency is EUR
This example uses the ‘Duration Type Selected’ as ‘Daily’ and uses the below applicable financing rates as at 11/07/2011.
In order to see the Daily Financing Rates for mi AEX you must select the Underlying as ‘mi AEX’ and the Duration as ‘Daily’ on the Financing Calculator:
| Daily Bid Rate | Daily Offer Rate | BID - OFFER Spread | |
|---|---|---|---|
| AEX (Reference Item) | -0.0037% | 0.0018% | 0.0055% |
| EUR (Currency) | -0.0012% | 0.0043% | 0.0055% |
| LONG Daily Financing Rate | SHORT Daily Financing Rate | Daily Discount Rate | Daily Net Charge |
|---|---|---|---|
| -0.0080% | -0.0030% | 0.0025% | -0.0055% |
The 2% yearly funding charge is the equivalent to a daily funding charge of 0.0055% (2% / 365).
The 0.91% mi AEX yearly discount rate, as per example 1, is the equivalent to a daily discount rate of 0.0025% (0.91% / 365).
This example is for a long position where we have a positive Daily Discount Rate of 0.0025%. This means you would make an inherent gain due to the discounting process. For this reason marketindex would charge you back the 0.0025% discount rate, then apply an additional 0.0055% charge (since this is a futures underlying) all via a Long Daily Financing Rate of -0.0080% calculated on the basis of AEX Daily Bid Rate - EUR Daily Offer Rate.
You hold the trade for 43200 seconds. These 43200 seconds do not include 16:00CET and occur in a day with 86400 seconds.
(Since this example is for a long trade and Rb is negative, the marketindex Offer Price has been used)
(Since Fr is already expressed in the account currency “EUR”)
(Since Fr is already expressed in the account currency “EUR”)
The Total Financing calculation is:
where for a Long trade,
therefore,
Therefore you will pay marketindex financing of 0.1390 EUR on the long mi AEX trade in this example.
Note: Due to the Daily Long Financing Rate, Reference Item Bid rate and Currency Offer rate being rounded, the financing charge calculated using the Financing Formula in Example 2 is 0.0004 EUR’s different to the financing charge calculated in Example 1. The financing charge applied to your marketindex trading account is always based on the yearly financing rates. The daily, weekly and monthly rates are only used for illustrative purposes.
Example 3 Short EUR/USD trade using Yearly Financing Rates
Trade: Sell 2,000,000 units of EUR/USD at 1.39388 where your trading account currency is EUR
This example uses the ‘Duration Type Selected’ as ‘Yearly’ and uses the below applicable financing rates as at 11/07/2011
In order to see the Yearly Financing Rates for EUR/USD you must select the Underlying as ‘EUR/USD’ and the Duration as ‘Yearly’ on the Financing Calculator:
| Yearly Bid Rate | Overnight Interbank Rate | Yearly Offer Rate | BID - OFFER Spread | |
|---|---|---|---|---|
| EUR (Reference Item) | -0.45% | 0.55% | 1.55% | 2% |
| USD (Currency) | -0.87% | 0.13% | 1.13% | 2% |
| LONG Yearly Financing Rate | SHORT Yearly Financing Rate |
|---|---|
| -1.58% | -2.42% |
You hold the trade for 717 seconds. These 717 seconds do not include 16:00CET and occur in a year with 31536000 seconds.
(Since this example is for a FX pair)
(Since Fr is expressed in “USD” it needs to be converted into the account currency “EUR”).
(Since this example is for a short trade and Cb is negative, the FX offer rate has to be used)
(Since Fp is already expressed in the account currency “EUR”)
The Total Financing calculation is:
where for a Short trade,
therefore,
Therefore you will pay marketindex financing of 1.1002 EUR on the short EUR/USD trade in this example.
Example 4 Long AUD/JPY trade using Daily Financing Rates
Trade: Buy 2,000,000 units of AUD/JPY at 85.28 where your trading account currency is EUR
This example uses the ‘Duration Type Selected’ as ‘Daily’ and uses the below applicable financing rates as at 14/07/2011
In order to see the Daily Financing Rates for AUD/JPY you must select the Underlying as ‘AUD/JPY’ and the Duration as ‘Daily’ on the Financing Calculator:
| Yearly Bid Rate | Overnight Interbank Rate | Daily Offer Rate | BID - OFFER Spread | |
|---|---|---|---|---|
| AUD (Reference Item) | 0.00945% | 0.01219% | 0.01493% | 0.0055% |
| JPY (Currency) | -0.00232% | 0.00042% | 0.00316% | 0.0055% |
| LONG Daily Financing Rate | SHORT Daily Financing Rate |
|---|---|
| 0.0063% | -0.0173% |
The 2% spread on the overnight interbank rate is the equivalent to a daily spread of 0.0055% (2% / 365).
You hold the trade for 19778 seconds. These 19778 seconds do not include 16:00CET and occur in a day with 86400 seconds.
(Since this example is for a FX pair)
(Since Fr is expressed in “AUD” it needs to be converted into the account currency “EUR”).
(Since this example is for a long trade and Rb is positive, the FX bid rate has to be used)
(Since Fp is expressed in “JPY” it needs to be converted into the account currency “EUR”).
(Since this example is for a long trade and Co is positive, the FX offer rate has to be used)
The Total Financing calculation is:
where for a Long trade,
therefore,
Therefore you will receive marketindex financing of 22.7262 EUR on the long AUD/JPY trade in this example.
Note: The financing charge applied to your marketindex trading account is always based on the yearly financing rates. The daily, weekly and monthly financing rates are only used for illustrative purposes.
Example 5 |
Trade: Buy 10 units of mi AEX at 336.44 and close your trade at the same price where your trading account currency is EUR
This example uses the ‘Duration Type Selected’ as ‘Daily’ and uses the below applicable financing rates as at 11/07/2011.
In order to see the relevant financing rates for mi AEX you must select the Underlying as ‘mi AEX’ and the Duration as ‘Daily’Financing Calculator:
| LONG Daily Financing Rate | SHORT Daily Financing Rate | Daily Discount Rate | Daily Net Charge |
|---|---|---|---|
| -0.0080% | -0.0030% | 0.0025% | -0.0055% |
You hold the trade for 1 day = 86400 seconds.
(Since Po is already expressed in the account currency)
The Total Financing calculation for a Long trade is:
Therefore you will pay marketindex financing of 2.6915 EUR on the long mi AEX trade in this example.
Note: The financing charge applied to your marketindex trading account is always based on the yearly financing rates. The daily, weekly and monthly financing rates are only used for illustrative purposes.