Example: Rolling a Short Bet
Opening Your Bet
It is 10 March 2009 and you decide to open a short position on Vodafone. The market price is 114.10, and we quote a spread of 114.05/114.15. You sell £10 a point at 114.05. The share price rises throughout the day, but you believe that it will fall the following day. You submit a request to roll your position overnight.
As you have requested to roll your position, we close your position at 120.40 at the end of the day, and you take a loss of £63.50:
Loss on deal
| Closing Level | 120.40 |
| Opening Level | 114.05 |
| Difference | 6.35 |
Loss on deal: 6.35 x £10 = £63.50
We then calculate the adjusted opening price.
Interest Adjustments on Short Spread Bets
Interest adjustments to opening prices are calculated daily in relation to the latest one-month interbank offered rate of the currency in which you are dealing. They also incur a rollover fee.
Unlike long positions, interest adjustments on a short position can result in either a higher or a lower opening price, because the rollover fee is subtracted from, rather than added to, the interbank offered rate when calculating the adjustment.
Therefore, if you have a position on a sterling denominated share, and the London Interbank Offered Rate (LIBOR) is greater than the rollover fee, the opening price will be higher than the closing price; conversely, if LIBOR is less than your financing fee, the opening price will be lower than the closing price.
On 10 March 2009, LIBOR was 1.2181%, which, assuming a rollover fee of 2.5%, means that the opening price will be lower than the closing price:
| LIBOR: | 1.2181% |
| Rollover Fee: | - 2.5% |
| Annual Adjustment | : -1.2819% |
This annual rate is then divided by 365 to ascertain the daily rate:
| Annual Adjustment: | -1.2819% |
| Days in a Year: | ÷ 365 |
| Daily Adjustment: | -0.0035% |
The daily rate is then added as a percentage of your opening price:
| Closing Level: | 120.40 | |
| Daily Adjustment: | + -0.0042 | (-.0035% of 120.40) |
| New Opening Price: | 120.3958 |
Your new opening price is 120.3958. This adjustment mirrors the interest that would accrue on profits made by selling shares in the underlying market. It is cheaper to roll a position than to close and reopen the position yourself, as you do not need to pay a new spread.
Closing Your Bet
As you predicted, Vodafone begins to fall the following day. By late afternoon on 11 March 2009, the spread price is 115.95/116.05. You believe that the price will fall no further, and you decide to close your position by buying at the offer price of116.05. Your profit on the second day is calculated in this way:
Profit on deal
| Opening Level: | 120.3958 |
| Closing Level: | 116.05 |
| Difference: | 4.3458 |
Profit on deal: 4.3458 x £10 = £43.46
The combined total for the two day's betting is therefore a loss of £20.04:
Combined Profit/Loss
| March 10 2009: | -£63.50 |
| March 11 2009: | £43.46 |
| Total Loss: | £20.04 |
Remember of course that if the market had moved further against you, you may have lost more than your initial deposit.
See a detailed example for rolling a long bet on Daily Vodafone.
- Related Info
- Dealing Handbook
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