Overnight financing

A charge for time, applied once for each night a position survives the cut off, and the entry platforms label swap. It exists because a position whose value has not been paid in full is being funded by somebody, and the funding has a price that accrues by the day whether the position is right or wrong.

Two calculations sit behind it. On a currency pair the figure derives from the interest rate differential between the two currencies over one day, adjusted by the provider's own charge, because the position is long one currency and short the other at the same time. On an index, share or commodity contract it derives from a benchmark interest rate applied to the notional value, with the provider's adjustment added on one side or subtracted on the other according to direction. One weekday carries three days at once, because the value date being rolled that day lands after the weekend. Share and index contracts also carry a separate dividend adjustment, which is not financing and is calculated differently.

The detail that catches people is the base. Financing is calculated on the full value of the contract and not on the amount deposited against it, so it does not shrink because only a percentage of that value was posted. Two more follow. A positive market differential does not necessarily produce a credit, because the provider's adjustment is applied to both directions and can leave both of them negative. And the rates move when either central bank does, so a position that carried a credit when it was opened can carry a debit later without anything else about it changing.