Dividends and Corporate Actions
If you hold a rolling spread bet over the dividend date, you will be credited an amount by your spread betting company equivalent to the gross dividend on the underlying stock on the trading day following the ex-dividend date. On the other hand, if you hold a rolling short position, your spread trading account will be debited an amount equal to the gross dividend on the underlying stock on the trading day after the ex-dividend date.
Likewise if there is any corporate action by the enterprise which had issued the stock to which spread bet relates, this will follow by an adjustment to the terms of the spread betting position. For instance, adjustments will normally be made for share splits, stock consolidations or rights or bonus issues. The provider has the right to make an adjustment in these circumstances according to the corporate action. The spread trading provider will seek to place you in the same economic position you would have been had the corporate adjustment not taken place. In situations where it is not possible to mimick the adjustment, the spread betting provider may opt to close the position. The provider may also choose to close a spread bet, where for example the underlying stock is subject of a takeover offer, in advance to the closing date of the offer.
An awful lot of people don’t realize that if you take out spreadbet positions in small caps with top-end companies they always buy (or sell) the underlying shares for your position, so you get the dividends credited to your account and if there is a distribution of shares, you will receive an appropriate position in the new stock.
Spread Betting Interest: Interest on Open Trade
If you hold a spread bet overnight you will incur interest on the open trade at market value. This value is calculated on a daily basis and is based on the on the closing market price for the underlying instrument on a specific day at the current interest rate. For instance, for a stock spreadbet, if the applicable interest rate is 3% over LIBOR (let’s say this was 5.25%), you would be paying a total financing rate at 8.25% per annum. If the spread bet was for a market value of £20,000 the funding charge would amount to about £4.52 for each day the contract is left open (£20,000 x 8.25% = £1,650 divided by 360) and would be debited from your trading account on a daily basis.
If you hold a short spread trading position overnight you will be likewise paid interest on the open trade at market value. The value is also calculated on a daily basis. For instance, in the case of a share spread bet if you were paying a sold spread trade funding charge of 2.5% under the LIBID (London Interbank Bid Rate (let’s say this was 5.00%), you would be receiving a total funding rate of 2.5% per annum. Assuming a market value of £20,000 you would be receiving about £1.38 for every day the contract is left open (£ 20,000 x 2.5%= $500 divided by 360) and would likewise be credited to your account on a daily basis.