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FAQ Page 3 - Question 26

Q: Why do spread bet prices always differ from the cash price?

A: Basically the price differential refers to what they call the cost of carry. If you buy $10,000 of gold from a Gold shop you'd have to pay the full amount in cash. But if you bought the equivalent of $10,000 of gold using a spread bet then you'd only have to put up a deposit, say 10% or $1,000. The other $9,000 could be left on deposit paying you interest. It is this interest payment that reflects the difference in price, hence the cost of carry.

Some spread betting clients go to great lengths trying to work out whether the price of the spread bet quote is out of whack with the cash price or the next spread bet month (June and Sep contract etc). Trust me, 99% of the time it's a waste of effort because the spread betting companies not only have very good computers to price their markets, but their personal are normally pretty sharp.

Take the assumption that the price you're quoted is always correct, and try and make money by forecasting its future direction.

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