How do you Spread Bet on Interest Rates and Bonds to Go Down?

There are two types of interest rates open to spread betting. These are short term interest rates and long term interest rates. Short term interest rates are typically a three month contract.

Short terms normally expire in March, June, September, and December. Spread betting on long term rates is betting on government bonds. Both types are slightly different and offer a variety to traders.

How Interest Rates are Quoted in Spreads

Interest rates are quoted in a spread by taking the interest from 100. The result is the price of the contract a trader must pay to bet. The spread is presented as a quoted spread without the decimals.

An interest rate of 3.5% transforms into a contract price of 96.5. Therefore, a spread offered by a betting firm might be 9620-9650. This is an example of how a spread is quoted with interest rates.

When betting interest rates down, the spread numbers will increase. This looks unusual from other markets and takes some time to adjust. An interest rate of 4.2% would have a spread that looks like this.

A spread with rates of 4.2% would have the number 9580 included. When rates go down from 4.2% to 3.5% this spread changes to 9650. The number representing the spread increased when rates decreased.

A trader betting interest rates is locking in the rate of interest. This means the price of the futures contract will increase with firms. In this example of interest rates betting the trader stands to gain.

Interest Rates Buy Bet

Betting interest rates down means one is looking for rates to lower. A spread bet on interest rates to go down is a buy bet with a firm. Again this is the opposite of how traders bet in other markets.

A buy bet involves placing a wager on the higher number of the spread. In this bet the wager size is still determined by the trader. Some spread betting firms require at least a minimum of £1 wager.

All other things are the same in spread betting interest rates. Profits and losses are found by taking opening and closing values. This point movement is then multiplied by the trader’s wager.

The result is either the profit or loss depending on a trader’s bet. Additionally, interest rates contracts are futures contracts. Like any other futures contract it can be closed prior to expiration.

Betting interest rates down is the correlation of rates and spreads. This is different than other markets and the types of bets. A sell bet predicts rates to go up and a buy bet is the opposite.

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