Jump to content
  • 0

Daily funded spread bet and quarterly (forwards)

Question

Hi

I tend to trade as a position trader and currently have open several cash funded spread bet positions on numerous shares (usually for several weeks or longer).

I have recently discovered that I can spread bet these positions as forward / quarterly funded positions and the IG academy suggests that this method is more cost effective than holding these longer term positions as Cash funded positions.

I understand that the wider spread reflects the increased cost and the material I have found on IG suggests this reflects the overnight funding charges for the quarter.

I can’t find anything that allows me to clearly see the difference in costs between holding a given long term position as a cash bet versus a quarterly bet and whether there is actually any benefit to be derived from doing so.

Can anyone help or advise. Does holding a quarterly position result in lower overall funding charges compared to cash and is there a cut off point where holding the position as a cash bet results in lower overnight funding charges.  I.e. If I open a quarterly position and then sell with a week would I of been better to open as cash funded position.

I don’t find the charge information particularly clear Andy helpful in allowing me to work out the differences (if indeed there are any)

Thanks
Justin

Share this post


Link to post

5 answers to this question

Recommended Posts

  • 0

Hey @Greeners - Let me try and break it down a little. As stated above this needs to be something you manually work out based on duration of trade etc. When you are looking at the DFB or Cash market for shares for example which have daily charges, you're going to need to consider...

Overnight funding if your deal is in GBP
Size × closing price × LIBOR +/- 2.5% ÷ 365
Based on LIBOR one month overnight rate

Therefore in this case you are looking at
£xxxxx X xxxx X (0.5% + 2.5%) / 365 = £xxxx a night 

You then need to add to cost to get in/out of the spot trade (i.e. the spread or commission)

If you are planning on holding a position for a number of days / weeks as you said it is worth thinking about using the Forwards contract which may be cheaper for you. You will pay a larger spread to open, however there is no overnight charges applied each night.

The cost on the forward will just be the spread or commission to get in/out of the trade. Both trades should incur the same FX charge if required. 

FX / commodities etc are slightly different but let me know if I can help on those. 

  • Like 1
  • Thanks 1

Share this post


Link to post
  • 0

Hi @Greeners, as size of bet is a factor in the overnight cost calculations and duration is a factor of total cost and these will be variable both by trade and by trader you would probably want to consider 'on average' am I better off with Spots or Forwards. Each trade and trading style will differ and make a publishable cut off calculation for all traders problematic and potentially misleading.

I haven't seen any such calculations on IG's web pages. One way to ascertain which would benefit you in particular would be to run a test on demo to find the on average best system though I do appreciate that will take time.

Anyone else with any ideas? 

  • Like 1

Share this post


Link to post
  • 0

@caseynotes 

Thanks for the response.  I did think about using the demo account but as it's free it doesn't actually show any historical charges from which to figure out the cost differences.  I decided to place a couple of live positions last night and interestingly the cost for one of the shares was minimal making a quarterly position  and as you say the overall cost is largely dependent on a number of factors so its not really a black and white answer to my question.

  • Like 1

Share this post


Link to post
  • 0

Thanks @jamesIG 

I assume trade size is the price per point. I’ve done some calculations and the result is within the range of what I’ve been paying so think I’ve sussed it out.  In addition if I go long on a position over the long term using the cash/spot price and it moves in my favour then the nightly interest I’m charged is also going to increase the more successful the trade becomes.

Share this post


Link to post

Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Answer this question...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Member Statistics

    • Total Topics
      5,862
    • Total Posts
      25,371
    • Total Members
      31,585
    Newest Member
    Double00
    Joined 13/12/18 22:57
  • Our picks

    • A (relatively) settled session - APAC brief 12 Dec
      A (relatively) settled session: It’s been a soft day for global equities. With almost exactly two-hours to go in the US session at time of writing, another modest rally has apparently been faded by traders. Indications are that Wall Street will close lower. If proven true, this will punctuate a mixed day for Europe, and quite a solid day for the Asian region. The former found little impetus to be bid higher, while the Asian session showed the ebullience of diminishing trade tensions. Scanning the major indices, volumes were up compared to their 100-day average, however were slightly down when compared to their 10-day and 20-day average. It reveals a market that is more settled than what it has otherwise been seen during the global share-market correction – but remains vigilant and prepared to turn at the sight of bad-news.

      Global growth: Given price action in last night’s trade was relatively more subdued, traders and analysts seemed able to take the clearer air to reflect on current market drivers. The theme that’s popped up consistently in the last 24 hours can be crudely articulated as “downside risks to growth”. It was a theme adopted by ECB President Mario Draghi during his press conference following last night’s ECB Meeting; and it was also referenced by PBOC last night in relation to China’s economic fortunes. It bears repeating: October, November and December in markets have been characterizes by bearishness, of course. However, the causes throughout this period have shifted. What was initially a sell-off catalysed by fears regarding higher US interest rates has transformed into one driven by fears about slower global economic growth.
      • 0 replies
    • Theresa May survives, Second Canadian diplomat apprehended in China - EMEA Brief 13 Dec
      Prime Minister Theresa May won a vote of no confidence in her leadership of the Conservative party last night. The results showed that Mrs May won the vote by 200 to 117, securing 63% of the total votes, she is now immune from any further vote's of no confidence for a year.
      • 0 replies
    • What’s making headlines - APAC brief 13 Dec
      What’s making headlines: There’s an hour and a half to go in the US session and global equities are up. Let’s assume they finish that way – there is plenty of room for clarification (and rationalization) late-on, if need be. Traders have taken the new green shoots in the trade-war and spun them into a positive narrative. Sure, the old green shots lay trampled below the new ones, but perhaps this time around the positivity will be given a chance to thrive. The other story hogging headlines in the financial press is the vote motion UK Prime Minister May’s leadership of the Tories. Market confidence has been shaken by that development, but as we wake-up this morning, the balance of opinion seems to be suggesting that May will win the day.

      The data side-show: Politics is driving markets still, which is always dangerous – it’s often a distortionary influence on prices rather than a revealer of fundamental facts. However, the fundamental economic data that was handed to traders overnight supported their optimism. Arguably the most significant release for the week, US CPI figures delivered a bang-on forecast number. If you’re a bull, locked in an environment where there exists fear of a global economic slowdown on one side, and fears about higher global interest rates on the other, a moderate outcome to any data-release is welcomed. Fundamental data last night was light otherwise, with US crude oil inventories the next most important release. It overshot forecasts, but still showed shrinking supplies, which boosted oil prices and (at the very least) didn’t detract from the bullish sentiment.
      • 0 replies
×