Rolling Daily Spread Betting
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Overnight Financing Examples
What is a Rolling Daily Spread Bet?
Firms like FinancialSpreads.com offer the increasingly popular Rolling Daily Spread Bets. A rolling daily contract provides a cost-effective solution for short-to-medium term trading.
Rolling daily spread bets do not expire at the end of the day. They are automatically ‘rolled over’ to the next trading session. Any corresponding orders for your trade are also rolled over automatically.
An overnight financing rate is applied on a daily basis.
All the normal benefits of spread betting still apply, including the ability to go long or short, tax free profits*, no broker’s fees and no commissions.
Why Trade Rolling Daily Spread Bets?
- Tighter spreads
- A wide range of World markets are available including: Indices, Shares and Forex markets
- Cost-effective solution for short-to-medium term trading
- Potential payment due to overnight financing
- Orders are automatically rolled over
- Familiarity of trading the underlying market but with the advantages of futures-style trading
Rolling Daily Markets and Dividend Adjustments
The morning after a share goes ex-dividend the price of the share will drop by approximately the amount of the dividend. Therefore with rolling daily spread bets, a ‘Dividend Adjustment’ is credited to long positions and debited from short positions which held at the close of business on the day before a share goes ex-dividend.
If you are long of the market, you will receive 80% of the dividend and if you are short of the market, you will be debited 100% of the dividend.
Dividend adjustments apply to both equity and index markets, any payment is credited/debited to your account on the ex-dividend date.
Rolling Daily - Overnight Financing
Rolling Daily spread bets incur a debit or credit for each day that they are held overnight.
Whilst it is normal for long positions on shares and indices to incur a debit, and for short positions to receive a credit when overnight financing is applied, there are however times when you may be debited for a short position, for example, when interest rates are very low.
For a trade held on a Friday or prior to a non-business day, financing will be applied according to the number of days until the subsequent business day. For example, for a spread bet that is rolled from a Friday to a Monday, financing will be applied for 3 days. Any profits/losses are realised when the position is closed.
Note that overnight financing for Forex positions is different.
How is the Overnight Financing Calculated?
The overnight financing for a rolling daily spread bet can be calculated using this formula:
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
i = Applicable interest rate:
- Buy (Long) Trades: RFR + 2%
- Sell (Short) Trades: RFR – 2%
Relevant Funding Rate (RFR):
- Shares & Indices Trades: The RFR is generally equivalent to the base rate of the underlying currency of the country of the relevant market. If you are long of a share/index this equates to real market cash exposure. Therefore interest may be charged on this cash value for each day that the position is held open overnight. If you are short of a share/index contract, an interest return may be paid on these equivalent cash funds.
For example, the RFR for a Sell of the Google rolling daily contract may be based on the US Federal Funds Rate minus 2%.
- Forex Trades: The RFR is calculated as the funding rate corresponding to the 2nd currency minus the funding rate corresponding to the 1st currency.
For example, the 1st currency of GBP/USD is the Pound and the second is the US Dollar. So if the USD rates were 2% and GBP rates were 4.75% then the RFR for GPB/USD would be 2% - 4.75% = -2.75% (a negative differential).
The rates used within these examples are indicative and are not necessarily representative of current rates. However, if the funding rates were as follows:
- GBP: 4.75%
- EUR: 2.0%
- USD: 2.0%
then the RFR of the following forex pairs would be calculated as:
| FX Pair | RFR | Calculation |
| EUR/GBP | 2.75% | (4.75% - 2.0%) |
| GBP/EUR | -2.75% | (2.0% – 4.75%) |
| EUR/USD | 0% | (2.0% – 2.0%) |
NB: Remember to add 2% to the RFR for long positions and minus 2% for short positions.
Unit Risk:
This is the smallest movement on the relevant contract that equates to a profit/loss change that is the same as your stake. For example on a GBP/USD trade a movement of $0.0001 in the price would mean a profit/loss shift on your trade of the full stake. Therefore the unit risk would be $0.0001.
Rolling Daily Spread Betting Examples
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UK Equities Rolling Daily
| Trade, Market | Buy, HBOS Rolling Daily |
| Stake | £10 |
| Unit risk | 1p |
| Applicable interest rate (i) | 6.75% (4.75% + 2%) |
| Closing price | 750.10p |
A £10 per penny Buy of the HBOS Rolling Daily market which has a closing price of 750.10p would be equal to a market exposure of £7,501. This equates your trade to the number of shares you would have to buy from your stockbroker in order to create the same market risk, a £10 trade = 1,000 UK shares.
(750.10p / 1p) x £10 x 6.75% = £506.32
£506.32 is the same as the ‘annual’ cost of borrowing £7,501 at 6.75%.
You then divide this by 365 to reach the daily charge: £506.32 / 365 = £1.39
Therefore, as you are long of an equity, your spread betting account would be debited £1.39 for the overnight funding.
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US Equities Rolling Daily
| Trade, Market | Buy, Microsoft Rolling Daily |
| Stake | £10 |
| Unit risk | $0.01 |
| Applicable interest rate (i) | 4% (2% + 2%) |
| Closing price | $26.49 |
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
= [($26.49 / $0.01) x £10 x 4%] / 365 = £2.90
Your account would be debited £2.90 for the overnight financing.
(Also see Microsoft spread betting).
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UK Index - FTSE 100 Rolling Daily
| Trade, Market | Sell, FTSE 100 Rolling Daily |
| Stake | £10 |
| Unit risk | 1 point |
| Applicable interest rate (i) | 2.75% (4.75% - 2%) |
| Closing price | 4,722 |
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
= [(4722 points / 1 point) x £10 x 2.75%] / 365 = £3.56
In this case you are selling the FTSE 100 and your spread betting account would be credited £3.56 for overnight financing.
(Also see FTSE 100 spread betting).
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US Index - Wall Street Rolling Daily
| Trade, Market | Buy, Wall Street Rolling Daily |
| Stake | £1 |
| Unit risk | 1 point |
| Applicable interest rate (i) | 4% (2% + 2%) |
| Closing price | 10,350 |
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
= [(10350 points / 1 point) x £1 x 4%] / 365 = £1.13
You are charged £1.13 for holding this spread bet overnight.
(Also see Wall Street spread betting).
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Forex - GBP/USD Rolling Daily (Buy)
| Trade, Market | Buy, Rolling Daily GBP/USD |
| Stake | £10 |
| Unit risk | $0.0001 |
| Applicable interest rate (i) | – 0.75% (2% – 4.75% + 2%) |
| Closing price | $1.8550 |
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
= [($1.8550 / $0.0001) x £10 x (–0.75%)] / 365= –£3.81
Your spread betting account would be credited £3.81 as overnight financing.
Normally, for a buy trade, you would be charged the overnight financing but because this calculation has returned a negative number, you would actually receive this amount.
(Also see GBP/USD spread betting).
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Forex - GBP/USD Rolling Daily (Sell)
| Trade, Market | Sell, GBP/USD Rolling Daily |
| Stake | £5 |
| Unit risk | $0.0001 |
| Applicable interest rate (i) | – 4.75% (2% – 4.75% – 2%) |
| Closing price | $1.8550 |
Overnight Financing = [(Closing Price / Unit Risk) x Stake x i] / 365
= [($1.8550 / $0.0001) x £5 x (–4.75%)] / 365 = –£12.07
Your spread betting account would be debited £12.07 as overnight financing.
Note that as with the previous example of a long position, this has returned a negative number but in this case, as this is a sell position, instead of you receiving the money you would be paying it.
The rates used for the above examples are indicative and do not necessarily represent the correct rates. Examples written as of 21 June 2010. This information and calculations are subject to change. Please contact your spread betting company for full details of their costs and rates.
Where Can I Spread Bet on Rolling Daily Markets?
A number of spread betting companies offer a wide range of Rolling Daily Spread Betting markets including:
What Markets Can I Trade Using Rolling Daily Contracts?
You can trade many key markets such as:
- Indices: including FTSE 100, Wall St (Dow), DAX 30, CAC 40 and Nikkei 225
- Forex: including GBP/USD, EUR/GBP, EUR/JPY, EUR/USD and USD/JPY
- Shares: including UK, US, German, French and Irish shares
- Commodities: most commodities markets are still traded as Futures Contracts rather than Rolling Daily Contracts however you can spread bet on a Gold Rolling Daily market with the above companies
Rolling Daily Spread Betting Price Guide?
For a guide to current spread betting prices see: Financial Market Data.
Financial Spreads >>
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
The above comments do not constitute investment advice and neither Clean Financial nor any contributing company or author accepts any responsibility for any use that may be made of them.
'Rolling Daily Spread Betting' edited by DB, updated 31-Jan-12
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