Interest-rate markups

How is the financing rate calculated?

The financing rate the simulation charges is the reference rate plus the relevant markup.

$\text{Financing rate} = \text{Reference rate} + \text{Markup}$

where the reference rate is the market rate the model starts from and the markup is the spread added on top. The borrowing markup applies to capital borrowed for leverage; the short markup applies to the cost of borrowing securities to short.

Defaults in Fincanva

• Two markups are modelled: a "Borrowing rate markup" (default 1.5%), described in the app as the "Spread added above the broker rate when borrowing capital", and a "Short rate markup" (default 2%), the "Spread added above the broker rate when shorting securities".
• Both are spreads over a reference rate, not the full rate themselves.
• They are applied only when costs are switched on; with costs off, modelled financing costs are zero.
• The resulting financing cost appears in the interest line of your capital and profit-and-loss breakdown.

Worked example

A strategy runs a month with leverage, holding more exposure than its cash by borrowing capital. For that month the simulation charges interest on the borrowed portion at the reference rate plus the 1.5% borrowing markup, so the financing cost is higher than the reference rate alone. That charge shows up in the interest line of the profit-and-loss breakdown as a drag on the month's result — the price, in the model, of carrying leverage. A short position would be charged the reference rate plus the 2% short markup in the same way.

The markups are modelling assumptions applied to historical results, not the rate a broker will charge you, and nothing here is a suggestion to use leverage or to short. Fincanva provides no financial advice — see Is this financial advice?.