Interest-rate markups are the spreads Fincanva adds on top of a reference rate to model what financing would cost inside a backtest. Borrowing money to use leverage, or borrowing shares to sell short, is not free in real markets — a broker charges a rate above the market reference rate — and the markups let the simulation reflect that cost. There are two: a borrowing rate markup for leverage and a short rate markup for shorting.
Also seen as: financing spread, short borrow fee
How is the financing rate calculated?
The financing rate the simulation charges is the reference rate plus the relevant markup.
where the reference rate is the market rate the model starts from — the margin-loan rate series — 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.
How does Fincanva handle it?
- 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: with costs on, borrowing and shorting always pay the reference rate plus the markup.
- The "Borrowing rate markup" also reduces what idle cash earns: it is subtracted from the reference rate before idle cash is credited — see interest received and paid.
- 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.
What does it look like in practice?
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.