This guide to rolling daily spread bets looks at a number of key areas such as:
- What is a Rolling Daily Spread Bet?
- Real Financing Examples
- Which Companies Offer Rolling Daily Markets?
- Why Use Rolling Daily Spread Bets?
- Rolling Daily Costs, Financing and Dividends
- Which Markets Can I Trade With Rolling Daily Spread Bets?
- Rolling Futures Contracts
Real Financing Examples for Rolling Spread BetsBelow, a few rolling fees that I’ve been charged.
These are clearly acceptable on a short-term basis but highlight the cost of holding a long-term trade.
Forex ‘Rolling’ and ‘DFB’ Costs ExamplesForex spread betting costs are all about the interest rate difference between the two currencies.
Stock Market Index ‘Rolling’ and ‘DFB’ Costs Examples
Commodities ‘Rolling’ and ‘DFB’ Costs Examples
Shares ‘Rolling’ and ‘DFB’ Costs ExamplesWith single shares there is a very big difference in financing costs depending upon the share price itself.
If you are spread betting and long of a $100 stock then you are borrowing much more than the same spread bet on a $14 stock. Therefore your overnight fees are proportionately higher.
The share prices above are listed as “£1.63 aka 163p” and “$160.70 aka 16075¢” not because we think you are stupid… but because the press often quotes in £ and $, while the spread betting platforms tend to quote in p and ¢.
Worked Financing Examples for Rolling Spread Bets
- UK Shares Rolling Daily
- US Shares Rolling Daily
- UK Index Rolling Daily
- US Index Rolling Daily
- FX Rolling Daily (Buy)
- FX Rolling Daily (Sell)
What is a ‘Rolling Daily’ Spread Bet?A number of operators like FinancialSpreads.com offer spread bets in the popular ‘Rolling Daily’ format.
A rolling daily spread bet:
- Can offer a cost-effective short-to-medium term way of trading
- Does not expire at the end of the day or on a set date like a futures market
How Does it Work?
- If an investor has not closed their rolling daily trade by the end of the day then the position automatically rolls over into the next session
- When a trade is rolled over, any corresponding orders such as Limits or Guaranteed Stops are also automatically rolled over
- If a trade is rolled over then an investor is normally either credited or debited for overnight financing based on whether they are speculating on a market to go up or down
- The overnight financing rate is applied on a daily basis
- All the normal benefits of financial spread betting still apply to rolling daily trades, including the ability to go long or short of a market, tax free trading*, no broker’s fees and no commissions
Why Use Rolling Daily Spread Bets?
- The spreads on rolling daily markets are normally tighter than the corresponding futures market
- Many firms offer a wide range of rolling daily markets including the key shares, index, FX and commodities markets
- As mentioned above, they can be a cost-effective solution for short-to-medium term trades
- If you sell a market then there’s a potential credit to your account because of the overnight financing
- If you open and close a trade on the same day then there is no overnight financing
- The overnight financing fee is typically just the relevant base rate +2%
Which Companies Offer Rolling Daily Markets?A number of spread betting firms offer rolling daily markets including:
- City Index
- ETX Capital
- Financial Spreads
- IG – called Daily Funded Bets (DFBs)
Rolling Daily Costs, Financing and Dividends
Rolling Daily Spread Bets and Dividend AdjustmentsWhen a share goes ex-dividend the price of the share in question will typically drop by the amount of the dividend.
As such, with rolling daily trades, a ‘Dividend Adjustment’ is credited to long positions and debited from short positions if they are held at the close of business on the day before the share goes ex-dividend.
With companies like IG, when an investor is long of the share in question they will receive 80% of the dividend. If they have shorted the share then their account will be debited by 100% of the dividend.
Note that dividend adjustments apply to both equity trades and stock market index trades. Any payment is credited to/debited from the investors account on the ex-dividend date.
Rolling Daily Spread Bets and Overnight FinancingRolling daily trades incur a debit or credit when they are held overnight.
Normally long positions on shares and indices incur a financing fee if they are held overnight. Likewise short positions receive a credit.
Note however, there are times when an investor can see their account debited for a short position, e.g. when interest rates are very low.
If a trade is held on a Friday or prior to a non-business day, the financing rate will be applied to the number of days until the next business day. E.g. when a spread bet is rolled over from Friday to Monday the financing rate will be applied for 3 days. Any profits or losses are realised when the trade is closed.
When you trade FX markets note that the overnight financing rate is calculated in a different way.
Rolling Daily Spread Bets: Overnight Financing Calculation
Normally the overnight financing rate for a rolling daily trade is calculated as:
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365
Ir = Applicable Interest Rate.
Where the Applicable Interest Rate (Ir) is:
- RFR + 2% on Buy (Long) trades
- RFR – 2% on Sell (Short) trades
- Relevant Funding Rate (RFR) for Shares and Stock Market Index Spread Bets
Normally, the RFR is the equivalent of the base rate of the country of the relevant market. If you are long of a share or index then this equates to real market cash exposure. As such, 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 or index contract, an interest credit may be paid to you on the equivalent funds.
E.g. the RFR for selling the Apple rolling daily market would be based on the US Federal rate minus 2%.
- Relevant Funding Rate (RFR) for FX Trades
With FX, the RFR =
(The funding rate of the second currency) – (The funding rate of the first currency)
E.g. the first currency of the sterling/dollar is the pound and the second currency is the US dollar.
Therefore, if the US base rate is 2% and the UK base rate is 3.25% then the RFR for the sterling/dollar market would be 2% – 3.25% = -1.25% (a negative).
The rates used within these examples are not necessarily representative of current rates.
If the base rates were as follows:
- Sterling: 3.25%
- Euro: 1.0%
- Dollar: 1.0%
FX Market Relevant Funding Rate Calculation euro/sterling 2.25% (3.25% – 1.0%) sterling/euro -2.25% (1.0% – 3.25%) euro/dollar 0% (1.0% – 1.0%)
- Unit Risk
This is the smallest movement of the relevant market that equates to a profit/loss change that is the same as your stake.
E.g. with a sterling/dollar spread bet a movement of $0.00010 in the market would mean a profit/loss shift on your trade of the full stake size and therefore the unit risk would be $0.00010.
Rolling Daily Spread Bets ExamplesThe following examples use the base rates of:
- UK base rate: 4.75%
- Euro base rate: 2.0%
- US base rate: 2.0%
UK Shares Rolling Daily – Buy Example
Market Rolls Royce Rolling Daily Trade Buy Stake £5 Unit Risk 1p Applicable Interest Rate (Ir) 6.75% (4.75% + 2%) Closing Price 740.50p
A £5 per penny buy of the Rolls Royce rolling daily market, which has a closing price of 740.50p, would be equal to a market exposure of £3,702.50. This equates your trade to the number of shares you would have to buy through a stockbroker in order to create the level of risk, in this case, a £5 trade = 500 UK shares.
(740.50p / 1p) x £5 x 6.75% = £249.92
£249.92 is the same as the ‘annual cost’ of borrowing £3,702.50 at 6.75%.
You then divide this by 365 to reach the daily charge: £249.92 / 365 = £0.68
Therefore, as you are long of Rolls Royce, your spread betting account would be debited £0.68 for overnight financing.
US Shares Rolling Daily – Buy Example
Market Hewlett Packard Rolling Daily Trade Buy Stake £5 Unit Risk $0.01 Applicable Interest Rate (Ir) 4% (2% + 2%) Closing Price $26.82
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365 = [($26.82 / $0.01) x £5 x 4%] / 365 = £1.47
Stock Market Index: UK 100 (FTSE 100) Rolling Daily – Sell Example
Market UK 100 Rolling Daily Trade Sell Stake £4 Unit Risk 1 point Applicable Interest Rate (Ir) 2.75% (4.75% – 2%) Closing Price 5600
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365 = [(5600 points / 1 point) x £4 x 2.75%] / 365 = £1.69
Stock Market Index: Dow Jones (Wall St) Rolling Daily – Buy Example
Market Dow Jones Rolling Daily Trade Buy Stake £2 Unit Risk 1 point Applicable Interest Rate (Ir) 4% (2% + 2%) Closing Price 11,450
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365 = [(11,450 points / 1 point) x £2 x 4%] / 365 = £2.51
FX: Sterling/Dollar Rolling Daily – Buy Example
Market Sterling/Dollar Rolling Daily Trade Buy Stake £2 Unit Risk $0.00010 Applicable Interest Rate (Ir) -0.75% (2% – 4.75% + 2%) Closing Price $1.55500
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365 = [($1.55500 / $0.00010) x £2 x (-0.75%)] / 365= -£0.64
Normally, with a buy trade, you could expect to be charged the overnight financing however because the calculation has returned a negative, your account would be credited.
FX: Sterling/Dollar Rolling Daily – Sell Example
Market Sterling/Dollar Rolling Daily Trade Sell Stake £4 Unit Risk $0.00010 Applicable Interest Rate (Ir) -4.75% (2% – 4.75% – 2%) Closing Price $1.55500
Overnight Financing = [(Closing Price / Unit Risk) x Stake x Ir] / 365 = [($1.55500 / $0.00010) x £4 x (-4.75%)] / 365 = -£8.09
It is important to note that, as with the previous example of a long FX trade, this has returned a negative number. However, because it is a sell trade, instead of you receiving the funds your account would be debited.
The interest rates used for the above examples do not necessarily represent the correct rates, they are for example purposes only. This information and the calculations are subject to change. If in doubt, contact your spread betting provider for full details of their costs and rates.
Which Markets Can I Trade With Rolling Daily Spread Bets?Investors can trade many of the key markets using rolling contracts, markets include:
- Stock Indices: FTSE 100 (UK 100), Dow Jones (Wall St), DAX 30 and Nikkei 225
- FX: dollar/yen, euro/dollar, euro/yen, euro/sterling and sterling/dollar
- Shares: UK, US, German, French, Irish, Indian and South African
- Commodities: most commodities markets are still traded as Futures Contracts. Note however that you can spread bet on a Gold rolling daily market with firms like Financial Spreads and CMC Markets
Rolling Futures ContractsSometimes investors will want to roll over a futures contract. If you want to roll any monthly or quarterly contracts you generally need to tell your spread betting company before the expiry date.
For equities, companies like Financial Spreads will close the existing trade ‘spread free’, i.e. at the market price, and open a new contract at half of the spread.
For indices, FX and commodities contracts, Financial Spreads will close the trade at their ‘mid point’ and open a new contract at the corresponding level.
As such, note that if you roll over a futures contract, the existing spread bet is closed and any profits/losses are added/subtracted from your account. A new spread bet is then opened.
Remember: Spread betting, CFDs and forex trading carry a high level of risk. You can lose more than your initial investment. These products are not suitable for all investors. Only speculate with money that you can afford to lose. Make sure you fully understand the risks involved and seek independent financial advice where necessary.