Daily funded spread bet and quarterly (forwards)

[Greeners]

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

[JamesIG]

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. 

[Caseynotes]

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? 

[Greeners]

@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.

[Caseynotes]

@Greeners,

Do let us know how you get on with comparing spots to forwards, will be interesting.

[Greeners]

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.