Financial spread betting blog

What types of spread bets are available?
There are two types of spread bets, rolling and quarterly. Bets are always quoted in UK sterling.
1. Rolling bets – A rolling bet is based around the underlying share price to which a small spread is applied. Positions which are open at the end of each day are automatically rolled over into the following day. The existing position is closed at the end of day price and a new position opened at the same level. Financing applies to all rolling financial spread positions held overnight. If you are holding a long position, you pay the financing and if you are holding a short position, you receive the financing. The reason for this is that spread betting is a form of margined trading. The person going long is essentially borrowing money and the person going short is lending money.
2. Quarterly bets – Quarterly bets always have an expiry date when your position will be closed. A quarterly bet, also know as a future or forward price, is derived from the current underlying market price, but adjusted for the cost of funding until the future date.
Funding has two components: financing and dividends.
Quarterly bets have financing built into the quote i.e. you aren’t charged any financing on a nightly basis, but the cost of all the anticipated funding up to the expiry date is built into the quote offered.
If the equity is likely to go ex-dividend before the future date, the value of the estimated net dividend is deducted from the future price since the holder of a spread betting contract is not entitled to any dividends. A spread is then applied around the adjusted future price.
Due to financing and dividends the quote given may be quite different to the underlying market price. We quote the nearest two months of the March, June, September and December cycle and the expiry day is the Tuesday before the third Wednesday of the contract month. Quarterly bets can be closed out at any time before the expiry date or left to cash settle at expiry.

This entry was posted on Sunday, November 1st, 2009 at 7:20 am and is filed under info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.