Spread Betting on UK and US Stocks

Q. How do providers calculate the bid-offer spread for shares?


A: To price shares a spread betting provider will typically take the underlying bid price and the underlying ask price and then add their spread around this. This means that the provider's bid price will be slightly lower than the underlying bid price and their ask price slightly higher than the underlying ask price. As the underlying market spread widens or narrows the provider's spread will widen and narrow with it.

For instance Spread Co charges a total spread of 0.1% (that is 0.05% each side) on FTSE 100 stocks.

Q. Why does the spread in individual shares vary?

A: Individual share futures mirror the underlying price of the share in the market. These spreads vary according to the liquidity in that share. At the beginning of a trading session, these spreads may be wider as there are fewer orders in the market. The spread betting provider will reflect this scenario in its future price as its spreads are quoted around the actual market price.

Q. Do the bid/offer spreads offered by spread betting companies vary from company to company?

A: Spreads do vary, but which company is cheapest depends on the particular market you want to take a position on.

The difference in spreads is more significant if you are trading actively, e.g., intra-day betting on indices and share prices, where spreads could form a significant proportion of gross gains. In this situation, it might be worthwhile open several accounts with different companies and for each bet choosing the one with the cheapest spread.

If you are taking longer term positions, which in the context of spread betting I would personally define as a month or longer, the cost of the spread becomes less significant and it probably wouldn't be worth the hassle of opening multiple accounts. This is how I spread bet, and personally I currently use mostly Ayondo.

 ...Continues here - Questions about Rollovers, Quarterlies and More

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