Bookies tempt day-traders with share future carrot


Came across this spread betting article in today's Evening Standard - Business Day:

"... for dealing in individual shares, the majority of day-traders still buy and sell shares the conventional way. Even though spread betting has tax advantages, these people prefer the very narrow bid-offer quotes offered by execution-only stockbrokers to the wider spreads quoted by bookmakers.

IG Index this week introduced weekly spread betting on shares. Rival City Index followed suit within hours. Weekly bets on shares involve narrower spreads than the well-established quarterly share futures expiring in mid-March, mid-June, mid-September and mid-Decemeber.

Take Vodafone, for example. Yesterday IG was quoting a spread of 197-199.5 for a future expiring on 20 March, but a spread of 196.75-198.75 for a weekly bet expiring at the close of trade on Friday. The spread on the latter was two points, compared with 2.5 points for the normal Vodafone March Bet. For the day-trader closing a position within a couple of days, this seemingly small difference amounts to a big saving.

Say that yesterday we made a £1000-a-point up-bet from 199.5 on March Vodaphone (equivalent to an exposure of nearly £200,000) and that we closed it tomorrow at the bottom of a new spread, 207.5-210.5. We would make profits of £8000 (207.5 minus 199.5, times £1000). If instead we had made a £1000-a-point up-bet on weekly Vodafone from 198.75, and closed that tomorrow at the bottom of a new spread, 207.25-209.75, our profit would be £8500 (207.25 minus 198.75, times £1000).

Weekly bets are cheaper as long as you do not end up holding the position for more than a few days. They can be rolled forward on a Friday into a new week but it costs another 0.25% every time you do that. One final word of explanation: the weekly spreads quoted above are slightly lower at both ends than the March spreads because the interest the bookie pays to hold such positions reduces the sooner a bet expires."

Angus McCrone
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