Spread Betting

Thirty9

This discussion is for all things related to spread betting.
I'll kick off by saying that City Index today has made a massive mistake and closed all of the trades of everyone I know who uses them. City Index somehow accidentally made the margin requirement suddenly increase by ten times, and therefore closed out the trades.
The problem happened about two hours ago and is still not rectified.

Thirty9

They've sorted the problem; all trades are reopened at the original price they were opened at, and the cash restored. The limit orders are missing and all of the trades are missing the auto-rollover.

shortseller09

They are useless, the trading platform crashes frequently in a fast market, unreliable.

Thirty9

shortseller09 said:

They are useless, the trading platform crashes frequently in a fast market, unreliable.

Agreed. The thing that keeps me using them is they do have tighter spreads compared to the others.

shortseller09

Agreed. The thing that keeps me using them is they do have tighter spreads compared to the others.

I mainly use them for the TradingView charting which is better than most.

Thirty9

shortseller09 said:

Agreed. The thing that keeps me using them is they do have tighter spreads compared to the others.

I mainly use them for the TradingView charting which is better than most.

Do you see the bug with the charts on your phone where the chart rotates even if your phone is set to not rotate?

shortseller09

I am on a laptop 99% of the time, but haven't noticed it when I open the app.

Thirty9

Something that some people may not know: certain DFT currency trades pay cash each night (known as the 'carry trade'). E.g. short eur/gbp, long gbp/chf.
As always, don't let the tail wag the dog: these trades should only be done if you think the trade itself will be successful.
But it is nice knowing you're getting paid while you can leave these open as long as you want.

cwep2

These companies make a huge spread on these carry positions though.

A simplistic way of picturing it, but principle is close enough: if the interest rate differential between ccy1 and ccy2 is 1% (it's the difference that matters much more than absolute rates) so lets say 0% for ccy1 and 1% for ccy2. If you are short ccy1 and long ccy2 for a year, then the carry should be 1%, paid in small increments every day. Tends to vary by small amounts and also go crazy at certain times (around month ends/IMM dates/financial year ends - which can be different for different currencies). 

And banks and the spread betting firms are able to get these daily rolls (called O/N or T/N) at interbank rates which are pretty tight, so lets say for a 1% interest rate differential mid, the implied interest rate differential they would roll their cash position at is 0.995% on one side vs 1.005% on the other side depending on if they were long or short. What they charge you is typically 0.5% vs 1.5% so when the differential is 1%, you may get 0.5% but the spread betting firm (/CFD firm) is pocketing the other 0.5%. And *on top of that* they will have say 100mio of client long positions and 50mio of client short positions, so the firm only has to roll a net 50, but they 'earn' 0.5% annualised on 150mio. It's a small daily fee basically on clients holding positions.

Not to discourage carry trades, but a much better way to earn carry and minimise costs if you plan to hold a ccy trade for more than a few days is to trade to a fixed maturity, say 1month or longer in the future, you are subject to future interest rate differentials moving, but this is a second order effect (unless you start doing 1yr sort of duration).

Source: I worked at a major bank trading FX and one of my jobs was rolling the daily positions of the bank and on behalf of hundreds of clients.

Thirty9

Thanks cwep2 - that's really good info. A downside to trading futures, rather than the DFT, is the spread is larger. And the spread is paid again if the trade rolls over.

Thirty9

I wonder if today's announcements of the cuts to the allowances for dividend tax and CGT will entice more people to spread betting, which is tax-free to the bettor.
Separately, a trade that has made money over the last few months is to long gbp/chf when it's below 1.13, and close the trade when above. The DFT also pays cash every night as it's a carry trade.