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I found that some trades gives overnight refund instead of overnight fees.

1- Can I build a strategy to profit from it?

2- Is this refund mount constant from the day I opened the trade till I close the position, or it is subject to change on daily basis (or even convert from refund to fee)?

3- Is there a formula to calculate it? If there is a formula, is it different from one broker to another?

4- In general, why there is an overnight fee/refund? I mean what does the broker do in the night to be paid for CFDs?

Note: I didn't use leverage at all (as in the screenshot)

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1 Answer 1

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CFD's charge an overnight fee as they don't want long term holders (the main CFD business is basically being a bookmaker for stocks), although they usually dress it up as being related to leverage or similar. This is because they just want people making short term trades all day and they can make the spread and any fees they charge just like a sports bookmaker. Holding overnight leaves them exposed to overnight risk which they have to either suck up or pay to hedge buying or shorting the underlying.

If they do get a lot of people wanting to hold overnight, a very cheap way when they start getting a lot of lopsided overnight action on a specific market is just to offer refunds to people to hold the other side of the trade overnight. This basically de-risks it by balancing the position between their customers and costs them basically nothing as they are just giving a percentage of the opposing customer's overnight fee to you and keeping the rest.

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    This answer has been accepted even though it addresses only part 4 of the question. Can you address parts 1-3? Also, I disagree that the refund "costs them basically nothing". A $1 refund leaves the CFD firm with $1 less. We can't say a cost doesn't exist just by pairing it with a revenue item. If the claim is that refunds can't tip the balance between overall profit and loss for the CFD firm, that depends entirely on what other costs and revenues exist.
    – nanoman
    Commented May 21, 2021 at 12:44
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    1) no obvious strategy unless you believe you have an edge over the lopsided market 2) it implicitly changes as they adjust trying to balance the action 3) ala 2 and the original answer it has to be dynamic and different per provider due to needing to balance the action. On your point the overnight fee is a mostly breakeven cost for them to pay the necessary hedging costs - as the risk ramps up they have to either pay the (large) fee to hedge or incentivise their users to do it for much less, hence the basically nothing.
    – Philip
    Commented May 21, 2021 at 16:35

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