# Bet Size Factor and NTR

Peter Temple, author of the Investor's Toolbox talks about bet size factors and the NTR

To you open a trading account with a spread betting provider you have to deposit some money in advance. For every trade you deal, a margin figure is computed based on the size of your your stake multiplied by a bet factor, which varies from market to market.

Here we come to a concept referred to as the NTR (notional trading requirement). This is another name for margin. You must at least have this sum on deposit in your account before you open a transaction. If the trade moves adversely to your predictioni, you will have to deposit further funds to cover any losses.

 Bet size factors/NTR for typical spread bets Instrument Bet size factor Tick size FTSE future 250 1pt Wall Street future 500 1pt DAX Future 250 1pt CAC40 future 250 1pt S&P500 future 500 0.1 pt Nasdaq 100 future 150 1pt Nikkei 225 future 500 1pt Gilt future 100 1 tick Bund future 100 1 tick Brent Crude 100 1 tick Gold 150 \$0.1

 Bet size factors/NTR for typical spread bets UK shares NTR = 10% of contract value Dow/S&P shares NTR = 10% of contract value Nasdaq shares NTR = 15% of contract value Options NTR = 100% of contract value

Note. Daily index bets have a bet size factor half that for the corresponding future.

The NTR acts as a cash cushion. In theory it should prevent you from getting in too deep. Let's look at an example.

You place a down bet in a share that has a bet size factor of 200.

You bet £4 a point.

The notional trading requirement is therefore £800.

Now let's say the share rises in price by 50p.

Because you placed a down bet, your trade is now losing money to the tune of £4 x 50, or £200.

Added to the NTR of £800 this bet has now absorbed the entire £1000 deposited in your account.

The NTR combined with the loss you've made (even though it's unrealized) equate to exactly the funds in your account. If the bet continues to go against you, you will be expected either to close the bet and take the loss, or provide extra cash to boost the funds in your account. This is known as a margin call. If you ignore a margin call, the bet will be closed without further notice.

Let's say you close the trade. It's worth stressing that you haven't lost your entire £1000, but only the £200 that took you up to the limit. The NTR is there to give you pause for thought and stop you losing more than you can afford.

The bet size factor varies according to the volatility of the underlying market. The more volatile the index or share, the bigger the factor and the more notional headroom you'll be expected to have in your account.

Be informed of the bet size faction in advance. Don't go on placing bets that could open you to further cash outlays if only a modest movest happens in the underlying market price.

There are a couple of other aspects to NTRs and margin when you are spread betting . One is that some spread betting firms will calculate the NTR on some bets as a simple percentage of the underlying exposure.

Here's an example:

Let's say the spread betting firm calculates NTR on a stock as 10% of underlying exposure. The price of the shares is 150 p and you are betting £5 a point. The NTR would simple be 10% of £5 times 150. That's to say 10% of £750 or £75. In the case of options, however, the NTR will often be equivalent to 100% of your initial exposure - that's to say the option price multiplied by your stake. This is because an option's price can be very volatile indeed.

The effective level of margin is also sometimes bigger than it would be you were trading the equivalent future. The system is setup in such a way that it encourages traders to keep excess money in their account and as such providers will earn interest on any unencumbered funds - one or two providers do offer interest on account balances, but you need to check on this before you open an account.

NTR Summarised
• Multiply bet size factor by your stake to get NTR.
• Bet size factor varies with underlying volatility.
• NTR is notional. You don't lose NTR if the trade goes wrong.
• NTR sometimes calculated as a percentage of exposure.
• NTR sometimes equates to 100% of your bet (e.g. in options).
• NTR is often higher percentage than future margin.

>> Next Page - Dreaded Margin Calls