Overnight fees for spot commodity markets

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If you hold a position with Capital.com on a commodity contract, it’s important to understand how our markets are priced. Prices are created using the two nearest futures contracts of the underlying commodity, as these tend to be the most liquid contracts. 

For our explanation let’s call the front month contract, the one with the closest expiry date, ‘F0’. The one with the second-nearest expiry date is called the ‘back month contract’ and we'll call this ‘F1’.Screenshot 2023-04-05 at 09.20.49.png

In between these two expiry points, our price gradually moves from the price of ‘F0’ towards the price of ‘F1’. As the difference in price between ‘F0’ and ‘F1’ is already priced into the futures markets, an adjustment is made on your account each day to account for the movement along this curve. For example, if contract ‘F0’ is trading 30 points lower than contract ‘F1, and ‘F1’ settles 30 days later, this would correspond with a 1 point adjustment each day. All things being equal, the Spot Commodity contract will trade 1 point higher each day to account for this difference as we move along the curve, with no net effect on your overall P&L (before the admin fee is taken into account).

The price of ‘F1’ can be higher or lower than the price of ‘F0’. This means that if you were receiving a nightly basis adjustment for a position on a commodity. If you keep this position over a period of time it could mean that the basis adjustment can swap from a credit to a debit. As it solely relies on the futures market and where the front and back month futures are trading in relation to each other. 

As with all of our markets you'll pay an admin fee to hold your position overnight. Due to how these commodities are priced, the overnight adjustment is split into two aspects. The first of these is a nightly basis adjustment, which reflects a day’s movement of our price from contract A to contract B. The second is our 4% annual admin fee.

The difference in price between two contracts is solely dependent on the commodity and market conditions, and can vary substantially. When the difference between these underlying futures prices is amplified, the number of points our market would move on a daily basis also increases. As such, we increase the adjustment. So you would see a large daily funding charge or credit applied to your position.

It is important to note that the increase only relates to the adjustment. This is a response to market conditions, similar to a dividend adjustment on an index, rather than a charge. The only aspect of the adjustment which is a charge is our admin fee, which remains at 4% regardless of market conditions.

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