====== Overnight Financing ======
Overnight Financing (also known as a 'Rollover Fee' or 'Swap Fee') is the interest paid or earned for holding a leveraged trading position open from one trading day to the next. Think of it as the fee for borrowing money overnight. This charge is most common in markets where [[leverage]] is prevalent, such as [[Forex]] (Foreign Exchange) and [[CFD]] (Contract for Difference) trading. When you open a leveraged position, you are only putting up a fraction of its total value; your broker is lending you the rest. The overnight financing fee is the interest your broker charges you on that loan. Conversely, depending on the trade and the prevailing interest rates, it's sometimes possible to //earn// a small amount of interest, though this is less common for retail investors as brokers' fees often absorb any potential credit. This fee is a crucial, often overlooked, cost that can significantly impact the profitability of a trade held for more than a single day.
===== How Does Overnight Financing Work? =====
The process might seem complex, but it boils down to a simple concept: you're paying for the privilege of using your broker's money to keep your trade active while the market is technically "closed" for the day.
==== The Mechanics of the Rollover ====
Most leveraged trading markets don't operate 24/7 without a break. They have an official closing and opening time each day. In the Forex market, for example, this is typically 5:00 PM New York time. If you want to hold your position past this "cut-off time," your broker performs a "rollover." They essentially close your position at the end of the day and instantly reopen it for the new trading day. The overnight financing fee is the cost associated with this action. Positions opened and closed on the same day (a practice known as [[day trading]]) are not subject to this fee.
==== Calculating the Fee ====
The fee itself is determined by a few key factors:
  * The size of your position.
  * Whether your position is long (a buy) or short (a sell).
  * The [[interest rate differential]] between the two assets in a currency pair, or the underlying benchmark borrowing rate for an instrument like a stock CFD.
  * The broker's administrative fee or "spread," which is their profit margin.
For example, if you go long on a stock CFD, you are borrowing money to buy the stock. Your broker will charge you interest based on a benchmark rate (like [[SOFR]] or [[EURIBOR]]) plus their own markup (e.g., +2.5%). If you were to short the stock, you are theoretically lending it. In this case, you might //receive// interest, but the rate would be the benchmark rate //minus// the broker's markup (e.g., -2.5%), often resulting in a small charge anyway.
A special consideration is the "3-Day Rollover." Because currency markets are closed on weekends, positions held over a Wednesday night are typically charged (or credited) for three days of interest to account for Saturday and Sunday.
===== Why Should a Value Investor Care? =====
While overnight financing is a feature of short-term trading instruments, its implications offer profound lessons for the disciplined, long-term investor. The core philosophy of [[value investing]], as taught by greats like [[Benjamin Graham]] and [[Warren Buffett]], emphasizes patience and the avoidance of unnecessary costs and risks.
==== A Drag on Long-Term Holdings ====
Value investors often hold assets for years. Overnight financing fees, though they seem tiny on a daily basis, are a perfect example of how small costs compound into major burdens over time. Holding a leveraged CFD position on a wonderful company for a year would be financial folly, as the accumulated financing fees could easily wipe out a significant portion of any gains. It’s like a tiny, slow leak in the hull of your investment ship—unnoticeable at first, but given enough time, it can sink the entire vessel. This constant "cost of carry" is precisely what value investors seek to avoid.
==== The Dangers of Leverage ====
Ultimately, overnight financing is a direct consequence of using leverage. It serves as a constant, tangible reminder of the cost of borrowed money. Value investors prefer to own assets outright—buying shares in a company, not a contract based on its price movement. Owning the actual shares of a company like Coca-Cola or Apple incurs no daily financing fees. You own a piece of the business, plain and simple. The existence of overnight financing highlights the fundamental difference between //investing// in an asset and //speculating// on its price with borrowed funds.
===== Practical Takeaways =====
For any investor, understanding these costs is vital for making sound decisions.
  * **Know The Costs:** Before ever using a leveraged product, investigate your broker's overnight financing rates. They are often listed on their website under a "Contract Specifications" or "Trading Conditions" section.
  * **Factor Fees Into Your Analysis:** If you are considering a trade that will last more than a day, calculate the potential financing costs. A seemingly profitable trade can quickly turn into a loser once these fees are accounted for.
  * **Favor Ownership Over Contracts:** For long-term goals, the value investing approach is clear: buy and own the underlying assets. This eliminates carrying costs like overnight financing and aligns your success directly with the success of the business you've invested in.