Daily Financing Charges
When you hold a position overnight, your account is debited and/or credited to reflect interest and dividends. The debiting/crediting method differs for long and short positions.
Adjustments on Long Positions
When you hold a long position, your account is debited to reflect interest, and credited to reflect any dividends. Consider the following example:
Interest Adjustments on Long Positions
It is 16 March 2009 and you decide to open a long position on Singapore Airlines. The market price is SGD10.30/10.32. You go long on 1500 shares at SGD10.32, the offer price.
The margin required to open the trade is 10% or SGD1548. The commission on the trade is 0.20% or SGD30.96 (1500 shares x SGD10.32 x 0.20%).
Interest adjustments are calculated daily, by applying the applicable interest rate to the daily closing value of the position. The annual interest adjustment for an SGD denominated share is found by adding the latest one-month SIBOR (Singapore Interbank Offered Rate) to your financing fee.
On 16 March 2009, SIBOR was at 0.44%, so the annual applicable interest rate, assuming a financing fee of 2.5% on your Singapore Airlines position, would be 2.94%:
| SIBOR: | 0.44% per annum |
| Fee: | + 2.5% per annum |
| Total: | 2.94% per annum |
The closing price is SGD10.16, which gives you a closing value of SGD15240. The annual interest on SGD15240 would be SGD448.10, which creates a daily interest debit of SGD1.23 (SGD15240 x 2.94% / 365).
Dividend Adjustments on Long Positions
When you hold a long position and the share goes ex-dividend, the dividend value is credited to your account. In this example there was no dividend, but if there had been, and the amount of the net dividend was SGD1 per share, SGD1500 would have been credited to your account (1500 shares x SGD1 = SGD1500).
Adjustments on Short Positions
When you hold a short position, your account is credited and/or debited on a daily basis to reflect interest and dividends.
Interest Adjustments on Short Positions
Interest adjustments on short positions on SGD denominated shares are calculated daily in relation to the latest one-month SIBOR (Singapore Interbank Offered Rate). They also incur a financing fee.
Unlike long positions, interest adjustments on a short position can appear on your account as either a debit or a credit, because the financing fee is subtracted from, rather than added to, SIBOR when calculating interest adjustments.
Therefore, if SIBOR is greater than your financing fee, the adjustment appears on your account as a credit; conversely, if SIBOR is less than your financing fee, the adjustment appears on your account as a debit.
Consider the following two examples:
16 January 2007: SIBOR is greater than your financing fee
It is 16 January 2007 and you decide to open a short position on Singapore Airlines. The market price is SGD17.90/17.92. You sell 1500 shares at SGD17.90, the bid price.
You supply a deposit of 10% or SGD2685 to open the trade. The commission on the trade is 0.20% or SGD53.70 (1500 shares x SGD17.90 x 0.20%).
SIBOR is at 3.44% and, assuming a financing fee of 2.5%, your account is credited at an annual rate of 0.94%:
| SIBOR: | 3.44% per annum |
| Fee: | - 2.5% per annum |
| Total: | 0.94% per annum |
The closing price is SGD17.82, which gives your position a closing value of SGD26730. The annual interest on this share would be SGD251.26, which creates a daily interest credit of 69c (SGD26730 x 0.94% / 365).
16 March 2009: SIBOR is less than your financing fee
It is 16 March 2009 and you decide to open a short position on Singapore Airlines. The market price is SGD10.30/10.32. You sell 1500 shares at SGD10.30, the bid price.
You supply a deposit of 10% or SGD1545 to open the trade. The commission on the trade is 0.20% or SGD30.90 (1500 shares x SGD10.30 x 0.20%).
SIBOR is at 0.44% so, assuming a financing fee of 2.5%, your account is debited at an annual rate of 2.06%.
| SIBOR: | 0.44% per annum |
| Fee: | - 2.5% per annum |
| Total: | -2.06% per annum |
The closing price is SGD10.18, which gives your position a closing value of SGD15270. The annual interest adjustment on this share would be SGD314.56, which creates a daily debit of 86c (SGD15270 x -2.06% / 365).
Dividend Adjustments on Short Positions
When you hold a short position and the share goes ex-dividend, the dividend value is debited from your account. In this example there was no dividend, but if there had been, and the amount of the net dividend was SGD1 per share, SGD1500 would have been debited from your account (1500 shares x SGD1 = SGD1500). Overall, you do not lose in this situation as the market price of the share will also fall when dividends are paid out.