With a quarterly bet
Spread betting on Bonds allows you to gain exposure to interest
rates.
In this example we use a UK Government bond, the Short Sterling
Future for June. You should read this example in conjunction
with our Spread Betting on Bonds and
Interest Rates information page.
The actual June short sterling future in the market is trading
at 94.98 - 95.01.
Finspreads quotes 94.98 - 95.02.
Our quote implies that by the June Contract expiry date,
interest rates will be between 5.02% and 4.98%.
This spread is calculated by taking 100 basis points, minus what
the market makers believe interest rates will be at the time of
expiry, ie 100 minus 94.98 and 100 minus 95.02.
If you think that interest rates will indeed rise, you decide to
sell the short sterling future at 94.98. In this market 1 point =
0.01
Remember that unlike spread betting on other financial
instruments, with interest rate futures and bonds if you think a
short term interest rate will fall you buy, and if you think it
will rise you sell.
If you were to trade at £10 per point:
Two months later interest rates have fallen and therefore the
June short sterling future has increased to 95.30 - 95.34 (this
implies that interest rates will be between 4.70% and 4.66% ).
You decide to realise your loss, so you buy £10 per point of the
June short sterling future at 95.34 (the offer price) to close your
position. Your loss is calculated as follows:
95.34 (opening price of your trade) - 94.98 (closing price of
your trade) = 36 points
36 points x £10 (stake) = £360 loss