Rolling Daily Bets versus Quarterly

Rolling Daily Bet vs Futures Bet:  In the past, spread bettors could not hold their positions overnight so that they were unable to take advantage of longer-term market trends in their investment strategies.

Now however, what is known as Rolling Bets have been introduced that allows you to roll over positions overnight so that positions are subject to the continuing fluctuations of the share markets, mirroring market movements and helping you to develop a more unified hedging strategy – unifying the behaviour of underlying stocks with that of your spread betting positions.

This helps you to play spread betting in the same way you would conventional trading, and because they are traded on margin, you are using less capital for the same exposure.

The price of the rolling bet is based on the underlying value of the instrument, the buy price will be higher and the sell price lower – this is the spread offered by the broker, as is where they generate their revenue. The tighter the spread, the less you pay!

With a rolling bet, the position is closed daily, usually at market close and a new price position is opened, crystialling any profit and loss in your account.  Most platforms allow the user to select whether they wish the rolling bet to keep rolling each day, otherwise it will expiry daily.

There is a financing charge for long positions – basically, the daily cost of the broker lending to you (normally around 2.5% percent above LIBOR). For short positions you receive financing credit minus a fee for borrowing the stock.

A Futures Bet also known as a forward price or futures quarterly is settled on the expiry date of the futures contract. At expiry the difference between the fixed futures price when the contract was purchased and the price at expiry is registered as a profit or loss for the spread bettor.

Expiry for a futures bet is generally calculated on a quarterly basis, with those expiring in 3 to 9 months, known as the near quarter and those expiring in 3 to 6 months, known as the far quarter.

Instead of financing being charged daily on Futures, the anticipated cost of funding the contract (up to expiry date) is accounted for in the quote of the spread with any applicable dividends factored in. Also, as a result of financing and dividend charges, the futures spread will usually be wider than that for a shorter term contract.

Generally it is thought that daily rolling bets are more cost effective for short term trades with larger stakes. However, with futures style contract, you are taking a longer view perspective on a market timeframe and are generally cheaper to finance when holding positions for months on end than using a daily rolling contract.  The only downside with future contracts is that you pay for the financing upfront in the buy price, and if you close out or get stopped out prior to expiry date of the futures contract, then you have effectively paid for financing you have not used.

What would it cost to hold a long position in one of these for say 18 months? Please also suggest which products would enable me to do this most cost effectively? i.e. using rolling/futures bets.

I would suggest you trade the daily rolling cash share as opposed to the future contract. The reason being the spread charge may only be 0.2% going in and 0.2% closing out while a future bet the spread charge may be up to say 1% in and another 1% to close out. Also the margin on a daily rolling cash trade is half that of a future bet. In this case 12.5% on Fayrewood rolling and 30% on the qtly future bet.

Also, on the quarterly contracts you will have to incur roll over charges at expiry. The only difference being is with the two contracts is on the daily rolling contract you get closed out at the close each day and reopened for the following day so realizing the profit or loss for the day. I would like to add that most spread betting providers do not charge an extra spread for rolling each day only once when you open and when you finally close your deal out yourself not in-between. All you do is pay the funding cost daily. An example of this is below.

The example below is based on buying a £100 per point at 90p.
You buy £100 (10000 shares) of Fayrewood at 90p = £9000 consideration.
Funding charge is 2.5% above base rate for the year. So £9000 x 7.5% = £675 per year so for 18 months it will be £1012.5

However, it is important to note if you bought the shares with a stock broker you would have to put up the whole £9000 while with a spread betting provider you would only need to put up 12.5% of that and use the rest to invest in something else or leave in a bank account. Also spread betting is a tax free product free from any stamp duty and capital gains tax.

The spread charge will be current price 90p x 0.2% = 0.18 x stake (£100) = £18.

If you trade the future contract the spread charge will be £90 so as you can see its much more beneficial to trade the daily rolling contract.

Note: If you have a timeframe of a month or two for a trade you’d likely be better off with the shortest contract as opposed to the rolling daily – say March if this is January. Rolling daily incurs open close fee although they only charge one way. March contract incurs a slightly wider spread but that’s it. Most of the times I use 3 month contracts, but I wouldn’t have a problem closing a day later if it rose significantly, then take a new position.

  1. No comments yet.
  1. No trackbacks yet.