Trade Types

Types of Bets

Effectively there are only two types of bets you can place. That is, you can either go Long or Short of a particular Instrument. Going Long is identical to placing an Up-Bet or Buying and going Short is identical to placing a Down- Bet or Selling or placing a Down-Bet.

The expression Short or Long can often be confusing since both phrases imply that you will be Long or Short of a particular trading instrument when you place a trade. This is not always the case since if you are, say, already £10 Long DOW Futures and you Sell £10 DOW Futures to close your position you are ‘square’ or ‘flat’ – although you have sold the market you are not by definition Short. Long or Short positions can be defined as when you have an open position either Long or Short. A number of traders and dealers use expressions like ‘Buy to Open’ and ‘ Sell to Close’ to clarify their thinking and understanding.

Each Instrument will be quoted with a Bid and Offer price. The Bid price is the price at which you would Sell and the Offer price is the one at which you would Buy.

Having decided that you wish to go Long or Short of a particular Instrument the next thing to decide upon is when you wish the bet to expire.

This can often be a little confusing since the different spreadbetting companies apply different rules. Spread bets can be taken out over different time periods. Let us explain in a little more detail.

Typically, the options available will be a Cash Bet or a Futures Bet, but more and more different type of Contracts are being introduced and it is wise to know all the options that your particular spreadbetting company offer. The type of bet you place will depend on your trading style, the expected time period for your bet to come to fruition and perhaps the funds available to you. It would not be unusual for a spreadbetting company to offer the following alternatives:

  • Daily Cash
  • Daily Futures
  • Near Quarter Contract
  • Far Quarter Contract
  • Annual Contract

All these bets will have different Bid and Offer prices quoted and would expire naturally, i.e. be closed by the Spreadbetting company automatically, at the end of the period.

Do not be surprised, however, to see other type of bets quoted e.g. Monthly

Quarterly bets can be held open for up to three months, and on their expiry date they can either be settled or ‘rolled over’ into another three-month bet. Monthly bets are also offered by some firms on indices and currencies. Rolling cash bets can be held open for shorter periods of up to a day, and then settled or ‘rolled over’ to the next day.

So, in the above examples here are the expiry periods:

  • Daily Cash – Expires at the end of the business day based on the Cash Price.
  • Daily Futures – Expires at the end of the business day based on the Futures Price.
  • Near Quarter Contract – Expires at the end of the near quarter (e.g. a bet placed in August would be on a Sept Futures contract that would expire at the end of the September Quarter around the 21st September).
  • Far Quarter Contract – Expires at the end of the far quarter (e.g. a bet placed in August would be on a Dec futures contract that would expire at the end of the December Quarter around the 21st December).
  • Annual Contract – Expires at the end of the current Year.

Rolling over a ‘buy’ bet incurs a financing charge. You have to pay this financing if you hold positions overnight because the spread betting firm is effectively lending you money to keep that position open. But if you go ‘short’ and roll over a ‘sell’ bet, you may receive a financing payment from the spread betting firm, because you are effectively lending it money.

Please check the spreadbetting company’s manual for all available options and, indeed exact expiration dates.

Having said all that, please remember you can close your bet or Position at anytime so even if you have opened up a Quarterly bet you can close it at any time up to the expiry date – five minutes later if you so wish!

To close your Position all you need do is the opposite of your existing Position. So, if your position is that you are Long DOW SEPT Futures at £10, then you need to Short (or Sell) DOW SEPT Futures at £10. It is also possible to close part of your position. For example if you had a profitable position you may wish to bank some profits and therefore close, say, half your position by Selling DOW SEPT Futures at £5, leaving you with a £5 open position.

Please note however, exactly what the procedure is for both Opening and Closing Positions as, once more, there are different rules between the spreadbetting companies. Some companies require you to Buy to Open and then Sell to Close If for example you had Bought to Open DOW Futures at £10 per point then you would have to Sell to Close to close the position. (If you Sell to Open you will have two positions running in opposite directions {one Long and one Short} and whilst you will not be making or losing money {apart from spread} don’t forget there is a MARGIN requirement for all positions.)

Other companies, however, simply allow you to Buy and Sell the same instrument and your Current Positions will automatically be up dated. For example if you were Long DOW Futures at £10 per point you would simply need to Sell DOW Futures at £10 per point to get your Current Positions to zero. Another example would be if you added to your original Position of £10 per point you would immediately become £20 Long and you could then, say, Sell £5 to leave a Current Position of £15 Long.

As previously stated, different rules are applied by each spreadbetting company. For example for a small charge (usually based on the spread) some will allow you to Roll over the bet into the next period (Day, Month, Quarter etc.) and others actually Roll the bet automatically (Rolling Cash) and therefore your Position will be open until you physically close it yourself. There is a charge for keeping the Position open.

It is vitally important that you understand the rules applied by your spreadbetting company and the charges involved in ‘Rolling’ a bet into the next period.

Another point to note here is there may be a time limit when you can actually open a bet e.g. you may not be allowed to open positions in a particular in instrument close to the expiry date.

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