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Find out more about other markets that we offer, from how they work and what they cover to how you can spread bet and trade CFDs on them.
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You can take a position on the future short or long-term direction of interest rate and bond markets.
Spread bet example
The price of the contract is always 100 minus the relevant interest rate.
A price of 98.5 means an interest rate of 1.5% (100 - 1.5) and a price of 97 (100 - 3) implies an interest rate of 3%.
The way spread betting works on interest rates is different to spread betting on other markets: you 'buy' if you think interest rates are going to fall and 'sell' if you think they're set to rise.
This is because when you buy an interest rate futures contract you are effectively looking to lock in an investment rate – you stand to gain if interest rates fall (the price of your future will rise) and vice versa.
The price of any interest rate CFD is always 100 minus the three-month interest rate for that currency.
For example, the current three-month rate for sterling deposits (GBP Libor) is around 0.5%, and this would be reflected in a price of 99.5 (100 minus 0.5).
If you think interest rates are going to fall, you ‘buy’. If you think they are going to rise then you ‘sell’. This is because the price of an interest rate future goes down as the interest rate rises.
To take an extreme example, an interest rate of 10% would give you a futures price of 90 (100 minus 10). A rate of 1% would give a price of 99 (100 minus 1).
Short-term interest rates
Short-term interest rates are one of the most popular and liquid financial markets in the world.
These contracts allow you to back your judgement on the direction of a currency's short-term (three-month) interest rates.
Long-term interest rates
Long-term interest rates are reflected in the price of government bonds, so by taking a position on a government bond you are speculating on the direction of interest rates.
Bond futures allow you to spread bet or trade CFDs on the direction of long-term interest rates in various countries.
Since bond prices rise when interest rates fall, you would 'buy' these contracts if you expected the relevant interest rates to fall and 'sell' if you expected rates to rise.
We offer a range of short-term interest rates, including US interest rates with our Eurodollar contract, UK interest rates with Short Sterling and eurozone with Euribor – as well as a whole host of other short-term rates.
Take a view on long-term interest rates in the US with our Treasury Bond contract, and gain exposure to UK rates through our Long Gilt contract or to Euro rates with our German Bund contract.
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 trade on interest rates?
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. You can take a view on a variety of long- and short-term interest rate futures across a wide range of global currencies.
The fundamentals of trading CFDs on interest rates are the same as on any other market. You ‘buy’ at one price and ‘sell’ at another. Your profit or loss is determined by the difference between the opening and closing price. However, when trading CFDs on interest rates, you should remember that you 'buy' if you think the rate will fall, and 'sell' if you think it will rise. This is because the price of an interest rate future goes down as the rate rises.
What are your minimum bet/contract sizes?
For spread betting:
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.
We offer standard and mini contract sizes. Mini contracts are 20% of the normal margin requirement.
For more details please see our product details page.
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 trading on interest rates you are taking a view (against the prevailing market view) of how the yield curve will change over time – you are expecting it will rise (rates go up) or fall (rates go down) and you are selecting the maturity on which to take a position.
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.