The spread and the financing
A spread position pays twice for the privilege of existing. The first charge is crossing the pair — the spread — and it is paid on the round trip. The second is the financing charge, and it is paid for time, which is why it only appears on markets that stay open.
Charge one: the spread, in proportion
A spread is an absolute number of points, and points only mean something next to the market's own range. The same three-point spread is trivial on an index that moves twenty points and decisive on one that moves three, which is why the useful version of the figure is the spread as a percentage of the notional value of the position.
notional value = 29 × £2 = £58
spread = 29 − 26 = 3 points = 3 × £2 = £6
as a proportion of the notional: 6 ÷ 58 = 10.3%
the same three points at £10 per point: notional 29 × £10 = £290; spread £30 = 10.3%
a six-point spread on a market quoted 44–50 at £2: notional £100; spread £12 = 12.0%
a six-point spread on a market quoted 44–50 at £10: notional £500; spread £60 = 12.0%
The proportion, not the money, is what changes with the market. Note also what the figure does not depend on: it is identical whatever the money per point, so the size of a position cannot dilute the cost of the pair. What size changes is the account's ability to absorb it, which is the margin question on the next page.
Charge two: financing, paid for time
A market that settles within two hours carries no financing, because there is no time to finance. A market that runs for a season — a team's total points, a series of matches, an aggregate index settled months away — does, and firms charge a periodic amount calculated from the notional value of the position for as long as it is held. The rate is set by the firm and published with the market; the arithmetic of what it does over time is the part worth seeing in numbers.
| Held for | Charge at 2.5% a year on a £13,000 notional | As a share of the position |
|---|---|---|
| 1 day | £13,000 × 0.025 ÷ 365 → £0.89 | 0.007% |
| 30 days | £13,000 × 0.025 × 30 ÷ 365 → £26.71 | 0.21% |
| 90 days | £13,000 × 0.025 × 90 ÷ 365 → £80.14 | 0.62% |
| 365 days | £13,000 × 0.025 → £325.00 | 2.50% |
That £13,000 notional illustration is a position of £50 per point on a market quoted at 260 — a perfectly ordinary season index. The daily figure looks negligible and is not: over a year it is 2.5% of the position before any move in the index at all, and it accrues whether the position is winning or losing. A long-held position therefore has to be right by the spread and by the financing before it produces anything, and both costs are known in advance while the outcome is not.
A year of round trips, in one number
Costs are easier to judge in aggregate than per trade, because the per-trade figure flatters a strategy that trades often.
cost per round trip = 3 × £2 = £6
spread cost for the year = 200 × £6 = £1,200
against a position of £58 notional, that is 1,200 ÷ 58 = 20.7 turns of the whole position
The single fact worth taking from this page is that the two charges are certain and the outcome is not. Which is also why no page on this desk discusses how to trade: the arithmetic of the two-way price is the honest part of the subject, and it points the same way whatever the market does.
The other side of the price is the firm
Both charges exist because there is no exchange here. The firm sets the two prices and it is the counterparty, so the spread is not a fee collected by a venue but the firm's own margin between the price it will buy at and the price it will sell at. Its size therefore varies with the market, the event and the firm's appetite — which is why two firms can quote the same event with different pairs, and why a reader comparing them is comparing spreads and financing rather than services.
The link below is the disclosed sponsored link. It is not a recommendation of a firm, a market or a rate, and none of the figures on this page is anyone’s live price.
Open the partner accountWhere this sits in the desk
- Buying and selling a price — where the break-even sits once the spread is paid.
- Running profit and loss — how a mark looks once both charges are in the account.
- Margin, calls and stops — the deposit that has to survive the two charges.
- Settlement and the make-up — the point at which financing stops accruing.