BONDS AND INTEREST RATES - MARKET INFORMATION

How to

go long and short in the same market

You are able to open a trade in the opposing direction to an existing trade in the same market, this is called a forced open trade. Rather than your positions netting off, you would now have open positions both long and short.

Forced open trades can be opened by placing a trade at the live available price or alternatively by adding an order to open at a different price, should the price subsequently move to the level of your order your forced open trade will be opened.

Forced open trades can be executed by ticking the forced open position on the deal ticket, you can also update your settings so the default setting is for forced open to always be selected.

It is important to note that placing forced open trades will result in increased costs. If you have forced open positions open overnight, the funding adjustments will be applied to all positions open and will lead to increased funding costs. These costs can be avoided by not placing forced open trades and just allowing your positions to net off eg. £10 long position and £10 short position = no net overall exposure.

HOW TO work out the

NTR/Margin for A Bond or interest rate trade

The Notional Trading Requirement (NTR, Initial Margin or Margin) is the amount of money we require for you to open a trade in a specified product. The NTR will normally be displayed as a percentage and can be found in the Bonds and Interest Rates Market Information | Spreadex

For example, placing a £10 trade on the UK Long Gilt at 91.70 would require £3,056.63 of NTR, as the NTR rate is 3.33% (£10 x 9170 x 3.33%).

The majority of markets will have a larger NTR rate for larger stake sizes. This is to reflect the increased risk of larger positions, we require a greater deposit the bigger the position size. The NTR tiers can be found on the information button alongside each market on our platform. The NTR tiers don't act as a cliff edge, they act as a step system where the NTR margin rate for each tier is applied against your position.

For example, if the UK Long Gilt has tiered margin catergories of 3.33% up to a stake of £500 and 15% above £500 and your stake was £505, only £5 of your position would be margined at 15%.

If you have a ‘Force Open’ position or an opposing trade in both the futures and daily you will only be charged NTR on the trade with the larger stake. 

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UK Long Gilts

UK Long Gilts are government-backed bonds issued by the Debt Management Office in the UK, and are named so because the original certificates had gilded edges.

You can place a financial spread bet on Long Gilt futures with Spreadex to speculate on the movement of long-term interest rates (which is different from the bank base rate).

It is important to understand the inverse relationship between bond prices and yields. As bond prices rise, long term interest rates will fall.

When placing a financial spread bet on bonds, you would place a ‘buy’ trade on Long Gilt futures if you think rates will fall and a ‘sell’ trade on Long Gilt futures if you expected rates to rise.

In general terms, government bonds are lesser known products when it comes to financial spread betting but they can still attract plenty of interest, especially in uncertain economic times with the collapse of the financial markets and interest rates, for example.

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The German Bund

The German Bund is a fixed-interest security issued by the German government to finance its debt, but is often seen as the benchmark contract for all euro-denominated government debt.

The Spreadex market is a future on the Bund, which allows you to place a spread bet on the direction of long term interest rates in Germany for hedging or speculative purposes.

Since bond prices rise when rates fall, you would place a ‘buy’ trade on Bund futures if you expected the rate to fall and a ‘sell’ trade on Bund futures if you expected rates to rise. It is important to note that you are trading on long-term interest rates rather than bank base rates.

In general terms, government bonds are lesser known products when it comes to financial spread betting but they can still attract plenty of interest, especially in uncertain economic times with the collapse of the financial markets and interest rates, for example.

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short sterling

This market is based on the London Interbank Offered Rate (LIBOR) which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market.

This rate can differ from the base rate. Placing a financial spread bet on a short-term interest rate may seem counterintuitive at first, as the price of the contract is 100 minus the interest rate.

For example, an interest rate of 2.5% will make a price of 97.5. If you thought interest rates would rise, then you would place a ‘sell’ spread bet on the Short Sterling 3-month future. Likewise, you would place a ‘buy’ spread bet on the Short Sterling 3-month future if you thought interest rates would fall