DFB Examples
FTSE® 100 DFB
This example takes you through the overnight funding charge on the FTSE® 100 DFB.
At 10pm, our FTSE® 100 DFB price is 5909-5911. Client A has a long position open for £5 per point, and client B has a short position open for £5 per point.
Funding charge
The funding charge is calculated as follows:
D = (S x P x R) / 365
Where:
D = daily interest adjustment
S = size of bet
P = underlying index price at 10pm (London time)
R = applicable annual interest rate
One-month LIBOR, in the currency of the bet, is the interest rate used for all funding charges. For the purpose of this example, 0.63% is used as the current one-month sterling rate.
Client A, with a long position, pays one-month LIBOR plus 2.5%
Daily interest adjustment = (£5 x 5910 x 3.12%) / 365 = £2.53 debited
Client B, with a short position, receives one-month LIBOR minus 2.5%
Daily interest adjustment = (£5 x 5910 x -1.87%) / 365 = £1.51 debited
With interest rates at historic lows, client B’s short position is still charged for funding.
Note: The formula uses a 365-day divisor for sterling-denominated bets and a 360-day divisor for US dollar- and euro-denominated bets. Positions held over the weekend will be charge for three days' financing.
Interest in respect of long positions is debited from a client's account, and interest in respect of short positions is either credited or debited from a client's account.
EUR/USD DFB
This example takes you through the overnight funding charge on the EUR/USD DFB.
At 10pm, client A has a long position open for £2 per point, and client B has a short position open for £2 per point.
Funding charge
While the position remains open, funding adjustments will be applied to your account. The adjustment is based on that day's tom-next spread for the currency pair involved. Tom-next is a market swap rate expressed in pips, based on the difference between the interest paid to borrow the currency that is being notionally sold overnight, and the interest received from holding the currency that is being notionally bought overnight.
An administrative charge of no more than 0.0055% per day is included on either side of the current tom-next spread.
That evening, our EUR/USD tom-next funding spread is -1.39 / -0.39.
Client A's long position means that they are notionally buying the euro, and notionally selling the US dollar. Client B's short position means the reverse.
Client A funding adjustment for long position = £2 x -0.39 = £0.78 debited
Client B funding adjustment for short position = £2 x -1.39 = £2.78 debited
The funding adjustment will be either a credit or debit to your account depending on the difference in each currency's interest rates, plus the IG administrative charge.
Positions held over the weekend will be adjusted for three days' financing.