Interest Rates Comparison

Firms offer investors the opportunity to trade on interest rates. Spread betting on interest rates can be done a couple different ways. The reason is interest rates are closely correlated to bonds.

As bonds and interest rates are correlated, a trader watches both. A spread bettor looks at bond spreads and interest with betting firms.

Trading interest rates with firms is normally on a futures contract. This means a trader is predicting the interest rate at expiration. A trader wanting to bet on UK interest bets on the short sterling.

A trader will bet on the short Eurodollar to bet on US interest rates. The sterling is correlated to base rates and contract prices change. This is true with all rates as the market changes forecast rates.

Spreads on Interest Rates

Spread betting firms have their own online spread betting markets. But most offer the basic Euribor, Eurodollar, and short sterling. Firms form spreads by subtracting anticipated interest from 100.

A spread betting firm believes they know the future interest rate. They predict the interest rate will be between 5.01% and 4.67%. Therefore, the spread for this interest rate is quoted at 94.99-95.33.

It is this spread in which traders should compare when looking. Market prices are continually changing due to global conditions. Interest rates fluctuate constantly as do spreads by different firms.

Narrow Spreads on Interest Rates

Traders want to look for a company which has narrow spreads. This will change frequently since spreads are always changing. One day a firm offers tight spreads but the next day it changes.

Currently firms are offering similar spreads on interest rates. The Euribor spread differs by 2 to 4 points and on the Eurodollar. The difference on the Euroswiss and short sterling are consistent.

At this time, there is no spread difference on the Euroswiss. Spreadex is quoting a 4 point spread difference on the short sterling. All other spread betting companies have a 2 point spread difference.

Traders should evaluate the minimum stake size with different firms. IG Index requires much larger stake sizes than other betting firms. Whilst they offer tight spreads, the stake size should be considered.

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