| Attention Spread Betting Experts

7th Jan by XTR

4 comments 289 reads

Afternoon all,

Can anyone help me understand the risks involved when trading US Treasury 3 Month Bill ETF (NMQ:TBIL) ? As an ultrashort bond fund with a monthly yield, inflation risk is negligible and since it's based on treasury bills, risk of default is also low. With this in mind, a leveraged spread bet could return 5x the monthly coupon at low risk and tax free. Collateral for the margin can be held in a high interest account at around 4% for further [taxable] gain, This seems like a reasonable strategy to take when in a difficult market, or am I missing something here?

Thanks in advance,

Ian

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Snowbum

7th Jan

You’ll need to also factor in what the NTR is on your bet. Depending on price movement of the underlying asset, it may require you to add additional margin, so best to have spare cash too I’d have thought.

dmjram

Spread bet firms charge you interest on the whole value of the open position, not just the margin.

This wipes out the gain.

XTR

Thanks for the response. I hadn't considered additional interest payments, thought that was lumped in with the spread like with futures, commodities etc. I guess US Treasury 3 Month Bill ETF (NMQ:TBIL) might be a better idea for the ISA.

Yes, good point, always pays to keep some in reserve. Although rates would have to increase unusually quickly to discount bonds of such short duration.

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XTR

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