Gapping/slipping/rolling help!

[bigSquid]

Hi,

Am fairly new to spread betting, have search for a concise answer but cannot find one.
(Using finspreads)
I have a few questions for you guys:

1. If I buy for instance 'x company' rolling at 50p per point at say 300-304, and set my stop loss at 280.. how can slippage affect me?
I understand that if a market opens at lower than my stop it will fill me at whatever it is at that point, I.E if it opens at 270, then it will fill me -10 points from my stop and I lose.

Anyway, do both 'rolling' and 'jun, july etc monthly' contracts have exactly the same problem?

Although I understand why slippage occurs, what I don't understand is that if I have money in an rolling contract that lets me buy/sell night long it seems, when does it ever 'slip' ?

I'm also not entirely sure when/if Finspreads charge me interest?
If I buy a 'rolling' contract and leave it overnight for a few days, or a week or so, when does interest get charged, or does it at all? I'm very confused about this.

I also understand that when buying a monthly contract you have a bigger spread to make up for this..

Sorry about the waffle, becuase I don't fully understand I can't communicate it well!

So basically I want to know why/when/how I can avoid slippage, does this vary from stock/share/index/monthly/rolling etc?

Thanks again,
Chris

 

[stevespray]

In the case of most spread bets you can only get slipped if the market closes and then opens below your stop. In this case it is fair to have your stop actioned basis the price the stock opens at. It is rare to get slipped on a stock if your stop is triggered in market hours. Rolling and Monthly contracts both operate in the same way. You need to understand that the contract which you are betting on is the firms version of that contract. The monthy contracts are therefore calculated through mathematical formulae. The monthy contracts are calculated by taking into consideration all know events between the current date and the expiry date of the contract. The monthly contract has an interest premium priced into it which decays over the course of the contract which in turn means that slowly the futures price draws towards the cash (or rolling) price as time goes forward. Dividends are also discounted in the future (monthly contracts) but are not discounted in the cash price until the stock goes ex div. If you are long the cash at ex div then you get paid the divi and if you are short the cash then you have to pay the divi.

With regards to the rolling bets. You will normally find that these get rolled on a daily basis. This rolling takes the form of one bet being closed and a new one opened. If you check the levels of this opening and closing you might find that they differ slightly and this is to reflect the cost of carry which you ask about.

It isnt always the case that the further out monthly contracts have bigger spreads. Besides, this isnt to cover the extra interest as this is already accounted for in the calculation of the quote. An extra spread might be in the far contract to force people into the near month as this will, over a longer period of time, generate more business as people will need to either roll positions or close out and reopen if they want to maintain a position in the same instrument.

Hope this helps,
Steve.

 

[bigSquid]

Thanks, I sort of understand most of that.

So if if I take out any rolling position, such for example DAX30 rolling or HMV rolling or aviva rolling or whatever, or even Google rolling at x amount per point, and set my stop loss accordingally etc.. and I predict that it will rise in the next 3 days, I am correct to choose the 'rolling' contract?

So what is the chance that one day I come and check my account in the morning and there is nothing left?!

I just don't understand at what time the market it has a chance to gap if I can seem to trade them almost 24hrs... and watch the ticker 24hrs.

I think I have missed a vital, obvious point here, and I'm sorry if I'm just being plain stupid.

 

[stevespray]

If their market trades 24 hours then the only time it can gap is at the weekend. Dax 30 Rolling is one such 24 hour market so you would seem to be safe on that one. If you are trading over the space of 3 days then Rolling would seem to be the right kind of product. Having said that you would need to compare the spread on the front month future. Dax Rolling is 2 points in hours but Im not sure what Dax June is spread wise.

Shares like HMV and Aviva dont trade 24 hours so you would be more likely to be gapped if there was news or a geo-political event whilst the market was closed. Obviously the risk depends on the stock involved. A small cap FTSE 350 stock is more likely to gap big style on news (ie 10%+ than a FTSE 100 stock). Generally the bigger the stock the more stable it is. A quick glance of the charts will also give you an idea.

Steve.

 

[bigSquid]

Thanks again Steve, much appriciated.

So if I think the DAX will rise over the course of the next month I should be choosing a month contract that ends where I think I would like to be able to close the bet....whereas if I just want to hold my position for up to a week or so then I should be choosing a rolling position, as it has a much tighter spread.

If I bought HMV rolling, and I guaranteed a stop loss at a certain point, can I adjust this in a day or so in the same way you can modify a normal stop loss?

It seems that the majority of people don't seem to place guaranteed stop losses, which seems a bit odd to me as theoretically they need a big normal stop loss to overcome some of the large spikes/gaps in some makets.

I'm just hesistant on trading this way as I always always use stop losses on every trade, and am worried that I may lose big if something gaps ovenight....

Thanks,
Chris