Types of spread bet (Rolling vs Quarterly)

Rolling (Daily, Rolling Daily) Bets

A rolling bet is based on the spread of the underlying instrument to which we apply a spread i.e. the "bid" is slightly reduced and the "offer" is slightly increased (this is how spread betting companies make money). Positions open at the end of each day are automatically rolled over into the following day. The existing position is closed at the end of day price and a new position opened at the same price.

Financing applies to all rolling positions held overnight. If you are holding a long position, you pay the financing charge and if you are holding a short position, you receive the financing credit. Since financial spread betting is a margined instrument the person who takes a long position is essentially borrowing money from the person who takes a short position.

Rolling bets are offered on equity, index, commodity and currency markets. The price is always derived from the underlying instrument price e.g. the futures market for indices and spot price for FX. Rolling bets can be closed at any time during the day.

Quarterly Bets

Quarterly bets always have an expiry date when your position will be closed. A quarterly bet, also know as a future or forward price, is derived from the current underlying market price, but adjusted for the cost of funding until the future date.

Funding has two components - financing and dividends:

a. Quarterly bets have financing built into the quote i.e. you are not charged any financing on a nightly basis, but the cost of all the anticipated funding up to the expiry date is built into the quote offered.

b. If the underlying equity is likely to go ex-dividend before the bets expiry date, the value of the estimated net dividend is deducted from the future price since the holder of a spread betting contract is not entitled to any dividends. A spread is then applied around the adjusted future price.

Due to financing and dividends the quote given may be quite different from the price of the underlying instrument or market.

Usually spread betting companies quote the nearest two months of the March, June, September and December cycle. For example, if the current month is July contracts which expire in September and December would be quoted. The expiry day is the Tuesday before the third Wednesday of the contract month. Quarterly bets can be closed out at any time before the expiry date as well as being left to cash settle at expiry.