Understanding overnight fees and adjustments on spot commodities (Natural Gas)

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What are the overnight fees for Natural Gas on Capital.com?

Overnight fees or overnight transactions for Natural Gas include two components:

Daily broker fee: This is a fixed fee of 0.01096% that you’ll pay when long and short positioned. It’s calculated based on the notional value of your trade.

Future-based adjustment: This adjustment is variable; it changes depending on the market conditions, ie on the underlying future prices. We use these futures to determine prices for our commodity spot contracts.

 

Does the adjustment mean I lose money on my Natural Gas position?

The future-based adjustment does not mean you lose money on your Natural Gas position. Your profit or loss is determined by the price difference between when you enter the trade and when you exit it. The adjustment is a necessary mechanism to ensure that your spot position accurately reflects the current market conditions and serves to maintain fairness and alignment with the price movements of the underlying asset.

 

How are Natural Gas spot contract prices determined?

Natural Gas spot contract prices are determined by considering the two nearest future contracts. We choose these contracts because they are the most liquid, meaning they are actively traded and provide the most accurate pricing. As the expiry of the nearest future contract approaches, the spot price gradually transitions to the next contract in line. This gradual shift ensures a smooth and reliable spot price for our offering.

 

Why do clients currently holding long positions on Natural Gas face a higher adjustment?

The higher adjustment fee for long positions on Natural Gas is currently primarily influenced by seasonal factors. As we head into the winter months, demand for natural gas typically rises, especially for heating purposes. This increased demand drives up the price of Natural Gas future contracts during winter. Consequently, the price difference between the two nearest futures contracts becomes more significant, resulting in an increased daily adjustment.

 

CFD Example

Let’s say you have a position of 1,000 thermals of Natural Gas, currently valued at $2.667 per thermal. This makes your total exposure $2,667.

Given the current price difference between the two upfront futures (eg October and November) would be $0.30 and there are 20 days separating the current month’s expiry date and October’s expiration date, there would be a current daily adjustment of 0.015 (0.30 (difference) / 20 (days till expiry)). 

Since the current gas price is $2.667, the daily adjustment would be 0.56% (0.015/2.667 = 0.56%).

For a long position, you would get debited a total of 0.57%, the future adjustment (0.56%) and our broker fee (0.01096%). This fee on your $2,667 exposure amounts to $15.23.

In contrast, for a short position, you would get credited 0.55%*, including the basis adjustment minus our broker fee. This results in a credit of $14.66 on your exposure.

*The 0.02% difference between the two rates reflects our broker fee, which you always have to pay when going long or short.

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