Spread Betting Rollover
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Spread Betting Rollover
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All daily rolling bets automatically roll; you need to trade out of them to close the bet. Futures contracts can be rolled over into another contract period. A rollover consists of closing and settling the original bet, while simultaneously opening a new bet in the next contract at a reduced spread. You can choose to have all your Futures bets rolled automatically, or you can notify the spread betting company on a bet-by-bet basis. Be careful as the setting for all accounts may be such that spreadbets in a futures market will be closed at expiry unless you request for it to rollover.
Can I keep my positions open at the end of the day?
Yes you can. Daily Rolling bets automatically ‘roll-over’ at the end of the trading day. If you decide to roll any quarterly, monthly or daily cash contract, you will need to contact the provider shortly before the contract expiry time to leave a rollover instruction. For equities, spread betting providers may offer certain favourable rollovers like permitting you to close an existing trade spread-free (at the market price) and offer the subsequent quarter at half of the normal spread. On rollover of futures contracts, the existing trade is closed, realising any profits or losses incurred and a new position is subsequently opened. In any case I recommend you to contact the provider for the exact terms (but make sure to ask).
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You are here: Home > Learn Spread Betting: Training Course > Choosing the Type of Contract to Trade: Rolling Daily Bet vs Futures Bet
Tip: You can rollover a futures contract yourself online, but if you did so, you would pay the full spread for both markets.
By doing the rollover over the telephone with the company’s dealers, you may be able to save up to half of the spread on one side of the deal.”
Some providers will close your original position at the mid-point of the current quote meaning that you do not pay any additional spread on closing the existing position.
Financial spread betting can offer traders the opportunity to trade a broad range of underlying assets and markets, without having to own the assets or commit the full value of a trade upfront thanks to the use of margin. Many of these markets are tradable as two different types of contracts, either as a rolling daily or a future, but derived from the same underlying market.
So in this section we will explain how the two different types of contracts work, how their pricing, spreads and costs differ and which types of trades they are most suited to.
Most providers offer two types of spread betting contracts:
A ‘Rolling Daily’ contract that can be kept open for as long as the trader wants. Technically the rolling contracts do actually expire although many years in the future.
A ‘Futures’ contract that has a stated expiry date, although it can be closed at any time before that date. Futures contracts can be rolled into the next corresponding month or quarter.
You need to pick the type of contract that will best suite the duration of your trade as they have different prices, spreads and costs.
Rolling Daily contracts roll over from one day to the next, along with any corresponding orders that might be attached. An overnight financing rate is applied for every night that you hold a Rolling Daily contract open. But Rolling Daily contracts can still provide a cost-effective solution for short to medium term trading.
The advantages of Rolling Daily contract include tighter spreads, lower margins and a provider’s quote that is easier to equate with the underlying market.
Rolling Daily contracts on individual shares can be kept open over periods when dividends are paid on the underlying shares. For this reason, dividend adjustments are made to your account if you hold a position in a share (or an index, in some cases) that goes ex-dividend.
If you open a position with a ‘buy’ to go ‘long’ on a share and that position is open when the share goes ex-dividend, then you will receive a credit to your account for 80% of the total dividend payment.
If you open a position with a ‘sell’ to go ‘short’ on a share and the position is open when the share goes ex-dividend, then a debit will be made to your account equivalent to 100% of the total dividend due.
Overnight financing is applied to Rolling Daily contracts because you are only putting down the ‘Initial Margin Requirement’ to open a position. For maintaining a ‘long’ trading position a debit is made to your account.
Buy you can receive a credit of overnight financing for a Rolling Daily ‘sell’ position, although during times when interest rates are very low you may even be debited for short positions too.
Your account therefore incurs a debit or credit for each day that a Rolling Daily position is held overnight.
Any Rolling Daily position held on a Friday night or over a provider’s non-business day (a bank holiday, for example) will incur financing to reflect the number of nights until the next opening session for that market. For example, any position that is rolled from a Friday night to Monday morning will incur a financing charge of three days.
“Jargon buster – Overnight financing: An interest rate based debit/credit applied to the account of clients who keep a Rolling Daily contract open overnight. This is made because clients trading on margin are effectively being given a loan to cover the total notional value of their positions.”
The overnight financing for a Rolling Daily position can be calculated using the following formula -:
The Relevant Funding Rate (RFR) is generally equivalent to the base rate of the underlying currency of the country of the market concerned.
The Rolling Funding Rate (RFR) for a short Rolling Daily contract on a US share is calculated using the US Fed Funds Rate minus say 2% or 2.5% according to the provider.
If you use a ‘buy’ trade to go ‘long’ on a share or index, this equates to real market exposure and so interest is applied to the total notional value of the position for each night that it’s held open. If you use a ‘sell’ trade to go ‘short’ on a share or index, interest may be paid on the total notional value of the trade.
RFF is the central bank base interest rate corresponding to the 2nd currency minus the central bank base interest rate corresponding to the 1st currency.
For example, a trade on GBP/USD Rolling Daily, the first currency is sterling and the second currency is the US dollar. Therefore, if the UK base rate was 4.75% and the US base rate was 2%, the the RFR for GBP/USD would be 2%-4.75% = minus 2.75% (a negative differential).
Remember to add 2% to the RFF for long positions and subtract 2% for short positions.
Future contracts are different to Rolling Daily contracts in that they are derived from live underlying futures contracts traded in the market, that will expire on a defined date.
You can close a futures trade at anytime before the expiry of the contract just as it can with a Rolling Daily contract. But the price quoted for a futures contract will have already taken into consideration all interest rate costs and any future dividend payments due between now and the time of expiry.
For example, a provider’s UK 100 Rolling Daily price might be quoted as 5000-5001, but the June future might be quoted at 5020-5024, and the September future might be 5031-5035.
This means that on the day of the price quote, the June future is trading at a ‘fair value’ to the cash index of plus 22 points and the September future is trading at plus 33 points.
Note also, that the future contracts generally have a wider spread than the Rolling Daily contracts.
On every subsequent day as the June futures contract gets closer to its expiry date, the fair value will gradually reduce towards zero as the interest rate costs reduce and ex-dividend dates are passed.
Most providers offer you the option to roll a futures contract into the next contract month/quarter, for example, to close a June UK 100 Future contract and open a September UK 100 Future contract.
You may wish to rollover a futures contract where the current month contract is about to expire but you want to keep the trade open into the next contract period.
Rolling over a futures contract is more cost effective when you do so on the telephone, because you can save half of the spread on one side of the deal.
For example, imagine you have an open ‘buy’ trade of £10 per point in the June UK 100 futures contract at 5100 and the current quote for this contract is 5112-5116, while at the same time the corresponding provider’s quote for the September contract is 5132-5136. If you closed out the June trade yourself online, and immediately bought the September contract you would sell at 5112 and re-buy at 5136.
If you made the same trade through a provider’s telephone dealers, you might be able to sell at the mid point on the June contract, which is 5114, and re-buy at 5136. This would save you 2 points at £10 per point = £20.
Risks: When you instruct a provider to rollover a futures contract, the existing position is closed, realising any profits or losses. If you had any limit orders attached to the original position these will also be lost and you will have to attach new limit orders.
With most markets, you have the choice over whether to trade the Rolling Daily contract or the Futures contract for any given market. On some markets however, you will have no choice as certain spread betting providers do not quote Rolling Daily prices for some markets or monthly/quarterly prices for others.
In general, Rolling Daily contracts tend to be used by traders looking for short term positions and the quarterly and monthly futures contracts by those looking to take a longer term view.
To help you make your choice, here is a table showing the main differences between the two types of contract -:
* Share futures are calculated by a provider using a cost of carry.
** Technically, Rolling contracts have a theoretical expiry date but this is many years in the future.
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A: Because of the gearing aspect every product be it contracts for differences, warrants, options or spread betting must either have a rollover or a separate funding charge. Debit for longs, credits for shorts. Excessive borrowing charges on specific stock lending can sometimes eradicate the short side credit. If there is a broker out there not levying this charge then they are either charging the client somewhere else in the contract or about to issue some bad end of year figures.
The only time you won't see the charges is on a longer term bet like a quarterly, where these are just a future and the funding aspect is factored into the opening spread. Check out near and far quarters of the same product to see the funding difference over the two periods. Be aware of any dividends due as they will also be factored in.
With regards to spread betting, daily funding is typically 2 to 3%. It is a nice little hidden cost that most clients don't notice. Quarterlies carry hardly any funding premium and will rapidly overtake a daily in regards to cheaper funding. If you hold a daily for much more than a week then you will be massively overpaying for your borrowing.
A: Share futures prices are calculated using a formula of interest rates and expected dividends within the contract period. The interest for the contract period is charged upfront, but usually if you sell your spreadbet before expiry you will receive the interest for the unexpired period. If a large dividend is expected, the future price will trade below the actual price to reflect this expectation.
A: Yes, anytime you like... I use quarterlies generally myself. You can also close out after market hours with the bigger companies and indices. Also, once your bet is coming up to expiry you can prolong it for another three
months by rolling over.
So, if you bought say a December expiry bet on Monday you could close it out any time, on Tuesday if you want! Hope that answers it...
A: Usually next expiry for normal medium term trades but sometimes rolling for shorter term ones. My rule of thumb is anything over 2 weeks and rolling becomes more expensive than next expiry!
A: Yes, the spread will be slightly wider - by two points on average. For instance, if you wish to trade the June contract the spread would be 10, however, if you decided to opt for the September contract the spread would be 12. The reason for this is that there is a higher financing cost on the longer contract.
A: Yes, spreadbetting does have expiry dates.
You can choose from Daily, Monthly or Quarterly expiries (so contracts do have an expiry date) just like Futures contracts except here you can also have Daily contracts that expire at the end of the actual trading day. But as soon as your bet is nearing expiry you can also prolong it for another three months by rolling it over...
Of course there is the difference in spreads for each contract to consider and these vary just slightly from each spreadbetting company
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Whilst it is more than possible to whip in and out of the financial betting market in less than a day, some traders opt to roll their bets over to maximise their chances of getting a good return. This can be a good strategy, but extending the term of the bet can involve financing charges and these need to be taken into account when calculating potential gains or losses.
Financial bets that are opened and closed on the same day do not attract a finance charge and all of the commission payment is included in the spread. However, if you opt to hold your position overnight, if you have gone long, you are effectively ‘borrowing’ money from your broker and they charge you for the privilege.
For a financial bet that is being rolled over daily, the charge will be applied for every overnight session you opt to hold your position. For long positions you will face a debit, but if you have gone short, your account will actually be credited. There are some exceptions to this rule; if LIBOR is running at a particularly low level, the finance debit will apply to both long and short positions.
The exception to the rolling charges is for quarterly bets; these already have the fees for rolling over incorporated. Why not simply plump for a quarterly bet and just close out whenever you want, you may ask yourself? Unfortunately, the spreads are far tighter on a daily bet compared to the quarterlies, so it’s a case of balancing the charges against the gain and calculating which way you would be better off.
In financial betting, daily finance costs are usually around 2.5-3%, so if you plan to roll over your position regularly it’s important to factor in the charge. Some providers have a minimum fee, depending on the market being traded.
The rollover charge is calculated by adding the rate from the broker to LIBOR and applying this percentage to the final price your investment closed at and then dividing by 365. This figure is then calculated against your stake to get your daily cost. Conversely, if you had opted to go short the same formula would apply in order to work out what would be credited to your trade. We address some common questions regarding spread betting financing charges here .
Financial betting has the advantage over other similar types of trading such as contracts for difference and futures because the Financial Conduct Authority, whilst regulating the activity, consider it to be technically gambling and therefore allow individuals to keep any profits without deducting Capital Gains Tax or stamp duty. However, the daily finance costs of holding a position open for too long can wipe out the tax benefits, so it is important to ensure you know how much you will pay for longer term trades.
If you plan on holding your position for a substantial period of time, an alternative approach to minimise the amount of money you have to cough up in charges may be better, unless you are very fond of your bookmaker and don’t mind them taking an increasing chunk of your earnings… In this respect I like Ayondo because they charge financing fees at 2.5% only on the amount you actually borrow from them and not on the full market position. So, say if you open a trade for £5,000 and put up £1,000 as margin to open the trade and leave the position overnight, Ayondo will only charge you interest based on the net £4,000 difference and not the full £5,000 [this is unlike what mostly happens with other brokers who charge you on the full position amount].
Finance costs may not sound like a lot when you look at the percentages but for large positions that are going to be rolled over repeatedly, the charges can quickly mount up. This doesn’t mean that all bets should be restricted to within a day, but it is worth keeping an eye on both sides of the scale when weighing up whether to roll over or hold a position.
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