Avoiding CFD financing costs overnight positions

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Viewing 15 posts - 1 through 15 (of 26 total)
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  • 03/14/2024 at 12:34 PM #229758
    Roger B.

    Hi traders,

    My question to the community is about using the right set of trading tool, broker and markets for my range of algo’s. Let me explain.

    Since a few months I’m using Prorealcode voor automating my portfolio of algo’s and so far its doing well. Market’s have been bullish as well, so this might be a correlation 😉

    In my setup I’m using the combination of PRC and IG CFD account. Several algos run concurrently on each of the 5 indices in my portfolio, a maximum of two in open positions.

    Here’s the catch: I’m getting hammered with (in my opinion) excessive financing cost for overnight open positions. You see, my portfolio consists of algo’s that close by the end of the day, but several that open positions for 4-12 days on average as well.

    I do not want to turn to day trading only algos. I want to maintain the multiple algo on 1 market principle. I’m puzzled on how to avoid these costs?

    I thought about using futures, but this seems to result in more favourable financing cost, but a 5%-10% reservation on each open position, forcing me to enlarge the account value.

    Can you experienced traders advise on using the right combination of broker and markets, given the nature of my algo portfolio? Or should I accept and consider these costs as unavoidable? Any referral to previous answered questions alike appreciated, I could not find them …

    I hope I explained my question well but can elaborate if that’s not the case. Thanks for giving it your thoughts!

    Regards
    Roger

    03/14/2024 at 4:40 PM #229775
    justisan

    hi Roger,

    I view those costs as kind of unavoidable with CFDs (and yes, they hurt a lot recently…). well, one maybe useful remark I can add: year ago or so I was discussing with some IG guy those costs and he told possibly they could reduce them in case one holds big positions for long time. I did not ask what he ment by “big” and by “for long” because I don’t consider my positions “big” nor do I hold them long, usually not longer than full week, with very rare exceptions.

    yep you can avoid those costs definetely with futures, and you discovered already one of the major trade-offs: higher margin.

    if somebody in the forum here would publish a trick how to avoid overnight costs with CFDs at IG – that would be a little gold mine 😀

    cheers

    justisan

    03/14/2024 at 5:32 PM #229783
    phoentzs

    I once had the idea of leaving the position at 220,000 every evening and re-entering the same position at 080,000 in the morning to avoid the financing costs. Unfortunately, that didn’t really work or my programming skills were probably not sufficient for it. So I leave the market every Friday evening so I don’t have to incur weekend costs.

    03/14/2024 at 7:51 PM #229798
    GraHal

    From reading the rules, it appears that we could exit at 21:59 and enter the same position at 10:01 and we would avoid overnight fees / interest.

    Reason: we get charged overnight fees on positions held at 10:00 hrs.

    03/14/2024 at 8:29 PM #229800
    phoentzs

    @Grahal Do you know the code for this to work exactly as it should?

    03/14/2024 at 9:12 PM #229803
    GraHal

    The times should not be a problem, so I guess you mean the position and if Long or Short etc?

    I bet you can do it Phoentz?  Set a Flag for Longs and a different flag for Shorts.  Roberto might help us if somebody were to start a separate thread in the ProOrder Forum?

    A further benefit can be made be exiting before spread increases … which, in the case of DJI, is at 21:00 as the spread increases to 9.8 so we need to exit at 20:59 on DJI.  Other Instruments will be different times etc.

    03/15/2024 at 10:26 AM #229824
    GraHal

    I woke thinking about this (below is using DJI as an example) surely all that is needed is  …

    1.   Exit before 21:00 to avoid overnight fees (and to avoid exit at spread = 9.8)
    2. Restrict entry again until after 23:00 (spread is lower).
    3. Allow conditions for entry (existing in strategy anyway) to determine any re-entry / trade opened after 23:00.

    We would not want to enter again after 23:00 unless entry conditions (already in the strategy) are true.

    I suspect that a lot of strategies that we all use do not follow this adage for open trades (and we are living in ‘hope’? ) …

    ‘If entry conditions are not true / =1 then should we keep a trade open anyway’?

    The gist of above (applied to this discussion) being that we would not want to open  the same direction trade after 23:00 … simply because we were going in that direction before 21:00 and before we exited to save overnight fees (applied to trades open at 22:00).

    03/15/2024 at 1:30 PM #229848
    robertogozzi
    GraHal wrote:

    From reading the rules, it appears that we could exit at 21:59 and enter the same position at 10:01 and we would avoid overnight fees / interest.

    Reason: we get charged overnight fees on positions held at 10:00 hrs.

    Yes, you can do that, but it will involve paying further spread and incur in some slippage.

    This is an example to exit and reenter (it includes weekends):

    1 user thanked author for this post.
    avatar GraHal
    03/15/2024 at 1:31 PM #229849
    robertogozzi

    23:00 (11pm) is for UTC+1 TZ.

    03/15/2024 at 1:44 PM #229852
    GraHal

    Link to Roberto code above added as Log 388 here …

    Snippet Link Library

    1 user thanked author for this post.
    avatar robertogozzi
    03/15/2024 at 1:52 PM #229854
    robertogozzi

    I edited line 12 to replace 23 by 230000.

     

    03/16/2024 at 11:21 AM #229883
    Roger B.

    Apparently my questions stirred something, thanks for all responses. Keep it flowing 😉

    But with regard to the initial question, it seems that in order to avoid costs, suggestions seem to complicate the scripting for this particular broker only.  Isn’t there any other broker out there that has more favourable conditions where I can connect my algo’s to? Or maybe it’s better to enforce to be flat on friday evenings?

    Cheers

    Roger

     

    03/16/2024 at 12:17 PM #229889
    GraHal
    Roger B. wrote:

    Or maybe it’s better to enforce to be flat on friday evenings?

    Yes probably.

    Overnight costs / fees are driven by that fact the broker loans us the difference between our trade value and what we deposit with the broker (for each trade) as margin.

    If we want to avoid overnight fees 100% then we could deposit 100% of our trade value with the broker … hence the broker would not be loaning us any money so would not need to charge us any overnight interest.

    But then our broker would be able to earn interest on our margin deposit of 100% trade value and so we would be losing out on interest we could otherwise get from our banks etc.

    To use an example, a £1 per point trade on DJI is a trade value of £39,000 currently.

    £39K on deposit at a bank at 5% earns just over £5 per day in interest for 365 days per year.

    03/16/2024 at 12:43 PM #229890
    PeterSt
    GraHal wrote:

    If we want to avoid overnight fees 100% then we could deposit 100% of our trade value with the broker … hence the broker would not be loaning us any money so would not need to charge us any overnight interest.

    Net, it is more complicated. Long vs Short. EUR account vs USD Instruments. Forex where you always manage to pay interest (never receive). Pending foreign money (profits you made in another currency while “of course” the rate goes against you before you exchanged it).

    IMHO with IG you always lose heavily. Try to open an account in USD, for example. Now look at what you need to pay for the exchange (I asked 2-3 years ago – it was something like 3% in one go, as in 3K for 100K). This seems a bit OffTopic, but one way or the other, you always lose.

    1 user thanked author for this post.
    avatar GraHal
    03/17/2024 at 12:06 PM #229918
    PeterSt

    All right, now let’s see;

    https://www.ig.com/en/help-and-support/cfds/fees-and-charges/why-is-overnight-funding-charged-and-how-is-it-calculated-
    (also see first picture below)

    Who does agree with me that this text is only commercial blah and that IG does not provide normal Futures at all ?
    If there’s someone who does not agree, can he or she please provide a “ticker” to select, for example the Nasdaq as a real Future contract means ?

    The strange thing is that apart from what I perceive as commercial blah, there are too many references to real Futures existing for IG. So how can this be ? Here is another link :

    https://www.ig.com/en/charges
    (see 2nd picture)
    Although the heading says “CFD” and even the text also expresses that it’s CFD’s Futures they talk about, they also claim this :

    We build the overnight funding charges into the spread, so that everything is included.

    and there it goes wrong with me. I mean, my bill for 2023 contained 2 main parts, and after a phone call with IG (support did not have the ready answers themselves), I could derive that the larger part of the bill was equal to the spread taken directly from the trades, but the other part was a mystery BUT could be calculated from the overnight costs (I was shown how that works, including a web page I now can’t readily find). And mind you, my bill was divided into a 8:5 relation, as in 8K for spread and 5K for “some” remainder, that remainder being the overnight costs.

    Now what is wrong here and can it be covered with another type of market like real futures ?

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