Financial Spread Betting

How Financial Spread Betting Works

In the stock market, when you want to deal in traditional shares, you go to a stockbroker and they will quote you two prices.

The lower of the two prices, which is the one you will get if you are selling shares, is called the bid price.

The higher quoted price is what you will have to pay if you are buying shares is the offer price. The difference between the two prices is called the spread.

In Financial Spread Betting the principle is exactly the same. You will be quoted prices, bid and offer, which includes our market making spread.

For example a share which trades in the market at 771c - 772c may be quoted by us as 769.8c -773.2c (including the TD Waterhouse Financial Spread Betting spread) for settlement at the end of the day.

A buyer of € 10 per point would make € 10 for every cent that the price of the underlying share exceeded 773.2c or lose € 10 for every cent that the price is below 773.2c. However, we update our quotes throughout the trading day linked to the underlying instrument so customers can take profits or cut losses at any point.

To open a bet and to keep it open, Margin must be paid which consists of the Margin Requirement (typically 10% of contract value for shares). Positions held overnight are also subject to financing costs.

TD Waterhouse Financial Spread Betting offer Rolling Bets on Irish, UK and International equities, indices, currencies and commodities. You can find details of the charges for particular Markets within the relevant Market Information tab, which is located on the Trading Platform next to each Market or by calling our Customer Services Team.

The general Financial Spread Betting principles outlined can apply to any market that TD Waterhouse Financial Spread Betting offers, but remember that if an open bet moves adversely, you will need to cover the running loss on top of your initial deposit in order to keep the bet open.

Financial Spread Betting is not currently subject to Irish or UK Capital Gains Tax regime nor Irish or UK stamp duty. Tax laws may change and are subject to individual circumstances

Rolling Bets

All TD Waterhouse Financial Spread Betting Rolling Bets provide a transparent, cost effective solution for short term trading.

Rolling Bets are offered on Irish, UK and International Equities, Indices, Commodities and Currencies. For Equity Rolling Bets, the price is based on the underlying share price to which a small spread is applied. Index Rolling Bets use a price derived from the appropriate Futures market to create a price that is representative of the underlying Index market.

FX Rolling Bets use the Spot price for the appropriate market to create the price. Rolling Bets can be opened and closed at any time during normal trading hours.

Financing

Margined trading involves a person who is going long (buying equities) - borrowing money and a person going short (selling equities) - lending money. The interest associated with this is known as financing.

Financing is calculated on Rolling Bet positions held overnight and is credited or debited on the next trading day. If you are holding a long Rolling Bet position (i.e. an up bet, equivalent to being long on the underlying shares), you pay the financing and if you are holding a short rolling bet position, you receive the financing. For more details on Rolling Bets, please see the relevant Market Information tab, which is located on the Trading Platform next to each Market or by calling our Customer Services Team.

Quarterly Bets

Quarterly Bets, unlike Rolling Bets, do have an expiry date. They remain valid for a quarter, after which the position is automatically closed on the expiry date. They can be left to cash settle at expiry date, or can be closed by you at any time before expiry. Quarterly Bets are also known as 'futures' or 'forward prices'.

Daily financing charges do not apply to Quarterly Bets. Instead, the financing cost of holding the position is built into the price - the quote therefore includes all the anticipated funding up to expiry of the position. In addition, the quote will include any potential dividend adjustments. As a result of the adjustments made for financing and potential dividend payments, the quote given for a Quarterly Bet may be quite different to the price of the underlying instrument, and quite different to the quote given for a Rolling Bet.

For Quarterly Bets, TD Waterhouse Financial Spread Betting will quote the nearest two months of the March, June, September and December cycles and the expiry date will be the Tuesday before the third Wednesday of the contract month.

A Bit More Detail

This section outlines TD Waterhouse Financial Spread Betting pricing policy and financing charges.

There are four elements which may affect the TD Waterhouse Financial Spread Betting quote:

1. The TD Waterhouse Financial Spread Betting spread is applied in addition to the underlying market spread and is akin to a commission charge.
2. Supply and demand may affect the upward/downward bias of the TD Waterhouse Financial Spread Betting quote in relation to the underlying instrument. In the vast majority of circumstances we do not adjust our prices in this way. Where we need to do this (in response to significant supply or demand) we provide the price before we ask which way you wish to trade. We would only rescind a quote if it were based on our "manifest error" (i.e. we had clearly made a mistake).
3. Financing affects all margined trades which are not closed within the trading day. This is because we will incur the financing charge associated with hedging in the full value instrument if the trade is carried overnight. This charge is passed on as a specific daily charge for Rolling Bets.
4. Other factors which may affect the outcome of the bet are dividends and corporate actions (e.g. rights issues/share splits/share buy-backs etc). These mainly affect equity and equity related bets and are intended to replicate the net dividend payment in the underlying market.

Equity Financial Spread Bets

Example of quotes in Vodafone

Market	Quote (€cents)	Comments
Vodafone underlying share quote	125 - 125.25	LSE quote
Vodafone rolling quote	124.8 - 125.4	Includes TD Waterhouse Financial Spread Betting spread.†

† No financing component unless held overnight.

FX Rolling Spot

TD Waterhouse Financial Spread Betting offers Rolling Spot contracts, which are based around the underlying spot price for the specific market. As there is no publicly accessible exchange or marketplace to obtain these FX prices, we take a minimum of three electronic price feeds from the professional market, select an aggregated mid price, then place our spread around it. Our spreads may be wider in situations of extreme volatility, or poor liquidity.

Commodity Rolling Spot markets

TD Waterhouse Financial Spread Betting offers Rolling Spot Gold and Silver markets. These markets are priced using electronic competing market maker prices to determine an equivalent mid-price, which we then wrap our spread around.

How is financing calculated?

Financing is the cost of carry of the value instrument in which TD Waterhouse Financial Spread Betting hedges its exposure. For most products this is calculated by multiplying the full-value consideration by the financing rate minus the margin required when the trade was placed. The financing rate is expressed in terms of increment/decrement over/under LIBOR. *LIBOR is the widely accepted reference rate used by the banking system; it is different for each currency and reflects bank deposit activity. See example 1.

For FX Rolling Bets, the daily financing is calculated by using the one day interest rate differentials for the two currencies concerned. Effectively, you receive the interest on the currency you have bought and pay interest on the currency you have sold, although the financing posting/adjustment will be made in one currency. See example 2.

Quarterly Bets