How Long Can You Hold A Contract For Difference(CFD)?
If you are interested in CFDs, you might be wondering if CFDs are a good option for long term trading positions. However, you should note that with CFDs, you get to trade ‘on margin’ which means most of the costs of the underlying asset are borrowed and paying interest every day. So long term holding of the CFDs is something that you should consider carefully.
The CFD finance fees are calculated when a trader holds the position after the market closes. CFD brokers charge a trader a pro-rata rate, which means that he doesn’t have to apply for credit rating to get approved to start trading CFDs. Trading with the right broker gets very important with CFD trading. AAATrade.com is one of the leading investment firms offering a vast range of CFD products to trade in.
CFDs do not expire so a trader can hold both short and long position as much as he can fund the position. However, long CFDs starts to get expensive after 4-6 weeks as they levy financing charges. Therefore CFDs are not suited for long term investing. CFDs are best for short term trading and speculation of the market.
Each day closes with the end of a trading session. If you still hold a CFD, most of the forex and CFD brokers charge holding fee. These costs depend on whether you are buying or selling at the end of the day. It also depends on the calculation of each broker. These calculations have variables like how many numbers of units are being held, the holding rate, the brokers’ currency conversion rate, and the opening trade price. The amount after calculation will either be credited to or debited from your account.
Indices – The holding rate of Index CFDs depends on the interbank rate. The standard interbank rate is 2.5%. Note that each currency gets affected by its own interbank rates, which can vary the results. For instance, AUD has an interbank rate of one month bankers’ acceptance bill, ZAR has a month deposit interbank rate, and USD has a month Libor interbank rate.
Shares – The holding rate of shares are similar to Indices. The standard rate is 2.5%, which is credited in ‘sell position’ and debited in ‘buy position.’ However, these rates may change when a share has a high borrowing cost.
Forex – In Forex, the calculation is a little different. Tom–next (Tomorrow to the next day) is a variable which holds its own currency pairs’ rate and gets reflected as an annual percentage. In forex CFDs, a buying position will produce a negative holding rate while the selling rate will produce a positive holding rate. Tom-next rate is determined by finding the difference between the two affected currencies’ interest rates. If difference comes positive in a buy position, the account will be credited; if it comes positive in a selling position, the account will be debited.
Cryptocurrencies – Cryptocurrencies have a holding rate for both the sell and buy positions, and this varies from each cryptocurrency. These rates have both overnight and annual costs. To determine how much amount will be debited or credited, the overnight rate, number of units and price of cryptocurrencies are used.