Choosing a Contract Period

Setting Contract Periods as an Expiry Time

There are many different assets you can trade when you are spread betting. For example, they can be stocks, events, sport matches, currency pairs, commodities, etc. However, you will notice that each quoted asset is specified using a contract period. This parameter represents the expiry time when your bets will automatically be closed.

Quarterly Contracts

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Quarterly contract months are March, June, September and December. When you select and execute a quarterly contract trade it will remain active for three months before closing on the 3rd Friday of the chosen quarter. For example, envisage that you opt to place a spread bet on Google with June specified as its quarterly contract. Consequently, your trade would expire on the 3rd Friday in June.

Do not be surprised if you notice that some assets have spreads offered which are supported by two quarterly contract periods at the same time. Such occurrences can happen depending on your spread betting broker and the current time of the year. For instance, you could see two quotes for gold with the first displaying a quarterly contract of June while the second is associated with September. Under these circumstances, you need to study the other key parameters associated with the two bets in order to ascertain which is more suitable for your trading aspirations and objectives. An important point to appreciate is that the September quarterly contract will, of course, automatically terminate later than the June one.

Daily Contracts

You will also have the option to execute spread bets based on assets using a daily contract. In such cases, your positions will then be automatically terminated at the end of the trading day. The spreads associated with daily contracts tend to be smaller than those of the quarterly counterparts because the risks involved are significantly reduced. A spread is defined as the difference between the central price and the Buy or Ask and the Sell or Bid prices

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Daily contracts are very useful tools as they enable you to speculate on the short-term performance of your chosen assets. For example, envisage that your technical and fundamental analysis indicates that the shares of Apple will surge during the course of the day. In order to exploit this analysis, you could execute a long spread bet using Apple as its underlying asset based on a daily contract. When your trade expires at the end of the day, you will be ‘in-the-money’ if your prediction proves to be correct.

When you do decide to open spread bets using daily contracts, you should first familiarize yourself with the trading times of the underlying asset relative to your own time zone. For instance, if you reside in the USA and trade a UK-based asset, then you must appreciate the impacts on your bet that can be caused by the differing time zones. Similarly, you need to realize that there is a significant difference between trading Japanese and European securities because of the time gaps involved.

One of the biggest advantages of using daily contracts is that their spreads are much lower than those associated with quarterly contracts. As such, you should evaluate the advantages of lower spreads compared to the increased risk levels of shorter expiry times every time you consider activating a spread bet based on a daily contract.

Rolling Spread Bets

A rolling share trade is based on the standard daily contract but is automatically rolled over into the next trading day. These spread bets are closed at 9.00pm (UK time) for USA assets and 4.30pm for UK securities. They are then re-activated automatically when the markets recommence business the following day. As such, your rolling spread bets will remain active until either you decide to exit them or you simply run out of funds to support them.

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One of the main benefits of Rolling Trades is that they offer smaller spreads than other contracts, such as the daily and quarterly. You can choose underlying assets from an extensive selection including firms that are members of the most popular indices, such as the FTSE100 and the S&P500, etc.

The big difference between a rolling bet and a standard one is that you will earn interest for every day that you maintain your trade open. The equation that is used to calculate the daily interest payable varies among spread betting brokers but basically follows the following formula:

Interest payable = ((LIBOR 1 month – 2%)/365) *(the total underlying value of your position) where LIBOR represents the current standard base interest rate.

An Example of a Rolling Bet

Envisage that your spread betting broker has offered you a spread for company ABC at 400.0:402. Your technical and fundamental analysis of the trading performance of this firm convinces you that it shares will decline over the coming weeks. You therefore opt to implement a short rolling spread bet at 400.0 @ £20 per point.

Imagine that the market closes on the first trading day with your bet recording a loss. Consequently, your broker posts a new spread of 410:412. Your loss for the day would be 12 times £20 = £240.

You rolling bet automatically reopens the following day at 410. You will then be still short at £20.00 per point. Assume that your asset drops in value during the course of the second day so that it closes at 350:352. Consequently, you would make a profit of about £1,200 for the second day.

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