Questions about Rollovers, Quarterlies and More...

Q: Why am I charged a rollover fee?


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.

Q. Why are the share futures prices different from the underlying price?

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.

Q. Can you close a quarterly spread bet any time you like?

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...

Q. Which are most cost effective - rollovers or next expiries?

I'm fairly new to spreadbetting with MF GLOBAL. They quote buy/sell prices for day (rollover), but also March prices, which are a bit higher. Which ones do you use?

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!

Q. If I buy into the September contract while the June contract is still open is the spread wider?

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.

Q. When you place a bet, can you keep it open indefinitely or will it be closed after a set number of days? Or does it vary from company to company?

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

 ...Continues here - Market and Limit Orders, Trailing Stop Orders, OCO and Parent and Contingent Orders

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