Financing Calculation

Continuously and Second-by-second

OANDA calculates financing charges or credits on the currency pairs currently held in customer positions. Moreover, OANDA calculates financing charged and paid continuously, second-by-second. This is in contrast to other financial markets, where financing charge or credit payments are made at daily intervals with the shortest increment of one business day. This page describes how financing is charged and paid.

Financing rates vary from currency to currency, and they can change on a daily basis. There are two types of financing rates in this context: ask financing rates apply when you go long to buy a currency, and bid financing rates apply when you go short to sell a currency. Ask rates are always higher than bid rates.

Please note, no interest will be paid on cash balances.


Financing Charges and Credits

Calculating financing charges or credits on open trades is more involved. An open trade, say 1000 units of EUR/CHF, involves two currencies: the Euro and the Swiss Franc. If the open trade is long (i.e., you bought Euro and sold Swiss Francs), then you effectively are long (i.e., you hold) 1000 EUR and OANDA pays you the bid financing rate on the 1000 EUR for the duration you hold the trade. At the same time, you are short on the equivalent amount of Swiss Francs, so OANDA charges you the ask financing rate on that amount for the duration of the trade. These financing rates are converted to your home currency (currency in your primary account) before they are credited/charged to your account.

If the open trade is short (i.e., you sold Euro and bought Swiss Francs), then you are short EUR and OANDA charges you ask financing rates for that amount of EUR, and you are long CHF and OANDA pays you bid financing rates for the corresponding amount of CHF.


How Financing charges or credits are Calculated

The specific algorithm used to calculate the financing charge or credit on an open trade in XXX/YYY is as follows:

For a long position:
1. calculate the bid financing rate on XXX for the duration in question and convert it to your home currency
2. calculate the ask  financing rate on YYY for the duration in question and convert it to your home currency
3. subtract (2) from (1). If negative, then this is the financing amount you owe --- if positive, then this is what OANDA will pay.

For a short position:
1. calculate the bid financing rate on YYY for the duration in question and convert it to your home currency
2. calculate the ask financing rate on XXX for the duration in question and convert it to your home currency
3. subtract (2) from (1). If negative, then this is the financing amount you owe — if positive, then this is what OANDA will pay.

OANDA credits or debits financing charges or credits on the account (with an appropriate transaction) for any trade that is open at 4pm, calculated for the time interval starting at 4pm the previous day or the time the trade was made, whichever is later, and ending at 4pm. When a trade is closed, OANDA credits or debits financing charges or credits on the account for the trade, calculated for the time interval starting at the previous 4pm or the time the trade was opened, whichever is later, and ending at the time the trade is closed.

Let us consider two specific examples.


Example 1: Buy 1000 units EUR/JPY @ 91.7308 on Monday Jan 1, 2015 at 12:02 a.m. on an account with USD as the home currency

Applicable financing rates

Assume that the following financing rates apply for Monday Jan 1, 2015:

EUR - 4.76 / 4.81%
JPY - 0.28 / 0.38 %

Note that the bid rate is quoted first, followed by the ask rate, and that interest rates are quoted in percentage points per year.

Calculate duration of trade

Now assume that the trade is closed at 5:45am later the same day on Jan 1, 2015. The amount of time the trade is held open is 20580 seconds (= 12:01am - 5:45am), or 0.00065214 years (20580 secs / 31557600 secs --- there are 31,557,600 seconds in a year).

Calculate financing charges or credits obtained on EUR

For calculating the financing charges or credits obtained on our EUR position, we use the following formula:

units * lifetime (in years) * EUR borrowing financing rate (%/year) * conversion to USD

If we plug in the appropriate numbers, we obtain:

1000 * 0.00065214 * 4.76% * EUR/USD bid exchange rate
       = 1000 * 0.00065214 * 0.0476 * 0.8423
       = USD 0.0261  

Calculate financing charged in JPY

For calculating the financing charged on our JPY position, we first note that we effectively are short 1000 Euros worth of Japanese Yen, which, with the exchange rate of 91.7308 is 91730.8 units of JPY (= 1000 * 91.7308) on which financing is charged. We then use the following formula similar to the one used above:

units * lifetime (in years) * JPY lending financing rate (%/year) * conversion to USD

If we plug in the appropriate numbers, we obtain:

91730.8 * 0.00065214 * 0.38% * JPY/USD ask exchange rate
       = 91730.8 * 0.00065214 * 0.0038 * 0.00918
       = USD 0.00209 

Difference between the two financing credit amounts

The account will be credited by the difference between the financing to be credited and the financing to be charged

$0.0261 - 0.00209 = USD 0.02401

Note that in this case the customer is collecting significantly more money than they are paying, due solely to the discrepancy in financing rates between the base and the quote currencies. In this instance, the base currency (EUR) financing rate is higher than the quote (JPY) financing rate, which is referred to as a "discount" quotation.

If the inverse were true (base currency financing rate lower than the quote currency financing rate), the instrument would be said to be quoted at "premium".


Example 2: Sell 2000 units GBP/CHF @ 2.5882 on Monday Jan 1, 2015 at 04:02 a.m. on an account with USD as the home currency

Applicable financing rates

Assume that the following financing rates apply for Monday Jan 1, 2015:

CHF - 3.18 / 3.28 %GBP - 5.97 / 6.00 %

Note again that the bid rate is quoted first, followed by the ask rate, and that financing rates are quoted in percentage points per year.

Calculate lifetime of trade

Assume that this trade is also closed at 5:45am later the same day on Jan 1, 2015. The amount of time the trade is held open is 6180 seconds (= 04:00am - 5:45am), or 0.00019583 years (6180 secs / 31557600 secs)

Calculate financing credited on CHF

For calculating the financing credited on our CHF position, we first calculate the number of CHF units the financing is applied to: 2000 GBP units worth of CHF with the exchange rate of 2.5882 is 2000 * 2.5882 = 5176.4. Then we apply the following formula again:

units * lifetime (in years) * CHF borrowing financing rate (%/year) * conversion to USD

If we plug in the appropriate numbers, we obtain:

5176.4 * 0.00019583 * 3.18% * 0.5606
= USD 0.01807

Calculate financing charged in GBP

For calculating the financing charged on our GBP position, we again use the following formula similar to the one used above:

units * lifetime (in years) * GBP lending financing rate (%/year) * conversion to USD

If we plug in the appropriate numbers, we obtain:

2000 * 0.00019583 * 6.00% * 1.4516
= USD 0.03411

Difference between the two financing amounts

The account will be credited by the difference between the financing to be credited and the financing to be charged:

$ 0.01807 - $ 0.03411 = - USD 0.01604

Since the amount is negative, the aggregate financing is charged to the account.

The leverage available on currency pairs, CFDs and metals varies by region (Note: CFDs and metals are not available in the U.S.). Please see our Margin Rules to learn more

The Commodity Futures Trading Commission (CFTC) limits leverage available to retail forex traders in the United States to 50:1 on major currency pairs and 20:1 for all others. OANDA Asia Pacific offers maximum leverage of 50:1 to on FX products and limits to leverage offered on CFDs apply Leverage for OANDA Canada clients is determined by IIROC and is subject to change. Refer to our legal section for more infomation.

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