In trading, the term overnight fee is used to refer to the interest paid on leverage. When you use leveraged investment vehicles such as contracts for difference (CFDs) or leveraged forex positions, you borrow money from a broker in order to multiply the value of your investment capital and open larger positions. As with other loans, you pay interest on the money you borrow.
Most brokers do not charge interest on money which is borrowed and repaid within the same trading day. Typically, interest charges only apply when a leveraged position is kept open past the end of the trading day corresponding to the underlying asset. This practice is referred to as overnighting. For this reason, the debit interest charged by the broker is referred to as the overnight fee.
The opposite applies when you go short on an investment. When you open a short investment position, you borrow an asset and immediately sell it. When you close the short position, you rebuy the borrowed asset and return it to its owner. When you hold a short position, the cash you receive when you sell the borrowed asset is held by your broker and earns interest until you close the position. The broker passes on all or part of the credit interest earned on your cash to you in the form of overnight fees.
In the case of CFD positions, you pay an overnight fee every time you hold a buy (long) position overnight, and the broker pays you an overnight fee every time you hold a sell (short) position overnight.
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