Spread betting has changed the way today’s investor trades the markets. One of the main attractions of spread betting is that you can trade a range of stocks and various markets all from one account.
When looking for spread bet markets to trade, one of the first things you’ll notice is that they come in roughly two flavours:
- “Future” spread bets such as “Aviva September” or “High Grade Copper July” that have a defined expiry date and which incur no ongoing finance charges because these charges have already been factored into the length of time that the spread bet is expected to run.
- “Rolling” spread bets which may also be called Daily Funded Trades (DFT) or Daily Funded Bets (DFB) that have no fixed expiry date and which incur ongoing financing or “rolling” charts for every day that they are left open.
While daily rolling bets may be aimed at short-term traders who will hold those bets for only a few days (or only one day), and futures-style bets may be aimed at longer-term traders who expect their bets to run for up to three months, as a predominantly longer-term position trader I personally prefer the rolling bets. For me it is a simple transparent proposition that I pay financing for exactly the length of time that I keep the bet open, no more and no less. In any case, when first placing a bet I often have no idea whether it will run for a few hours or several months.
There are five main categories of markets that are popular for today’s spread better and you can choose to trade either one or all of the instruments on offer depending on your appetite for risk and the available margin in your account.
The broad categories with examples are:
- SINGLE SHARES – UK, EUROPEAN and US
- STOCK INDICES – FTSE 100, DAX, CAC, S&P 500, and Dow Jones
- COMMODITIES – Gold, Oil, Soybeans
- CURRENCIES – Sterling, US Dollar and the Euro
- BONDS – Bund, Gilt, and BOBL
Futures (Quarterly Contracts)
Futures contracts are generally for those taking a long term view. The price is calculated by taking the current cash price of the underlying equity and adjusting it to account for interest over the term of the contract (fair value). When a share trades ex-dividend, the relevant cash adjustment will be applied to the account on the ex-date (long positions normally receive 80% of the declared dividend and short positions pay 100%). Contracts are offered on a quarterly basis and expire on the closing price on a stated day in the contract month.
Rolling bets are designed for those taking a shorter term view. They have a tighter spread than the futures contracts so can sometimes be more cost effective for those intending to trade for a short period of time. These positions do not expire and will remain open unless they are manually closed or an associated order to close is triggered. There is a daily rollover charge for daily rolling positions.
The cash market is designed to represent the value of the underlying cash index and is derived from the corresponding futures market using fair value adjustments. The daily cash contract will expire at the end of the day.
Daily Rolling Cash
The rolling cash contract will rollover automatically on a daily basis unless closed out manually or an associated order is triggered. This contract is subject to a daily rollover charge.
These prices are based on the underlying market price traded on the relevant futures exchange. The daily contract will expire when the markets close at the end of the day.
Daily Rolling Future
The rolling futures contract will rollover automatically on a daily basis unless it is manually closed or an associated order to close is triggered. This contract is subject to daily rollover charges.
Index future prices are based on the underlying market price traded on the relevant futures exchange. They will expire on the specified expiry date displayed on the ‘Info’ tab. This date is dependent on the relevant exchange contract. The corresponding contract period will be denoted by the month in capital letters e.g. UK 100 – SEPT. These positions can be rolled over to the next quarter by request.
Please note: When any futures contract is rolled over to the next quarter, it creates a new contract and as such any orders associated with the previous contract will not apply. Orders on the new contract will have to be added manually by the client.
Rolling spot contracts are based on the spot price of the underlying forex cross. These positions do not expire and will remain open unless they are manually closed or an associated order to close is triggered. There is a daily FX rollover charge for each day the position is left open.
Future FX prices are based on the spot rate adjusted forward based on the relative interest rate differentials. They will expire on the specified expiry date displayed on the ‘Info’ tab. The corresponding contract period will be denoted by the month in capital letters e.g. EURUSD – SEPT. These positions can be rolled over to the next quarter as long as the MarketSpreads trading desk has been informed prior to the expiry date.
Futures contracts are priced based on the corresponding contract on the relevant futures exchange. Contracts are offered on a monthly or quarterly basis and expire on the closing price on the stated day in the contract month.
With most providers you should be able to take trades on most leading index market, such as the FTSE and Dow Jones as well as many European indices, such as Germany’s Dax. However, it should also be possible to trade on index markets ranging all the way from Singapore to South Africa and from Norway to the Netherlands. Providers also quote thousands of individual shares, which is a good way to take a market view on the future direction of a specific company in the short to medium term.
It should also be possible to trade on industry sectors – like retail or oil and gas companies. With commodities the more popular markets are naturally oil and gold however it is also very much possible to trade on the price movements in other metals such as silver, platinum, aluminium and copper, as well as on soft commodities like wheat, corn and coffee.
Trading on short-term and long-term interest-rate movements in market such as the United Kingdom, USA and Eurozone are also available although these are more niche markets. Other novel markets include the ability to bet on UK house prices, with some providers quoting property markets that are based on the housing market indices as provided by the Halifax bank and Nationwide Building Society.
Providers are normally able to offer almost any market out there, even if they do not currently quote it on their trading platform. However, keep in mind that the more volatile the instrument you wish to bet on, the higher the risk and therefore the more it is possible to lose.