INTEREST RATES FAQs
Here are answers to some frequently asked questions about interest rates. For more details please see our bet details.
Why are interest rates important?
Interest rates are essentially the price of money, and influence all of our personal and commercial activities.
Whether it's the cost of your mortgage, the interest you receive on your savings or the finance charge on your credit card you are likely to have been affected by interest rates at some point.
Like goods and services, interest rates are affected by supply and demand – in this case, for money.
However, governments can influence interest rates through monetary policy.
How can I bet on interest rates?
You can take a view on a variety of long- and short-term interest rate futures across a wide range of global currencies.
Spread betting on interest rates works in exactly the same way as all our other bets – if you 'buy' at one price and 'sell' at another your profit or loss depends on the difference between the two prices.
Please see our interest rates examples for more information.
What are your minimum bet sizes?
The best way to demonstrate how minimum bet sizes relate to exposure is by looking at an example:
With our Short Sterling contract (a spread bet on UK short-term interest rates), bets are in pounds per point.
The minimum bet size is £2 per point. In this case, one point equals one basis point move in interest rates, ie 0.01%.
Let's say you place a bet at the minimum size of £2 per point. To get an idea of your exposure, a big move in the UK short-term interest rate might be a 25 basis point move, perhaps from 0.5% to 0.75%, and one that the market was not expecting.
If you had chosen to 'buy' our Short Sterling contract because you expected the rate to fall, your loss would be £2 x 25 = £50, which would also be your profit, had you decided to 'sell' Short Sterling.
Full details of minimum bet sizes are available within our trading platform or you can read more about them in our bet details.
What is a 'yield curve'?
A yield curve is a curve on a graph where the yield (the income from an investment – in this case the amount an interest rate will pay) on deposits or fixed-income securities is plotted against the length of time they have to run until maturity.
Usually, yield curves slope upwards, indicating that investors expect to receive a premium on securities they hold for a long period. A negative yield curve might be seen when markets expect interest rates to fall.
When you are spread betting on interest rates you are taking a view (against the prevailing market view) of how the yield curve will change over time – you are betting it will rise (rates go up) or fall (rates go down) and you are selecting the maturity on which to bet.
How do governments affect interest rates?
Even if you believe that supply and demand will ultimately dictate prices and interest rates in the long run, the reality is that national governments can pursue policies that have a significant effect on interest rates.
For example, in 2009 and 2010 the Bank of England's intervention in the UK gilt market as the major purchaser almost certainly depressed gilt yields and kept UK interest rates down.
Spread bets are leveraged products. Spread betting may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.