How can I find out about spread betting rebates?

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I saw your article below however I think it seems unclear which brokers provide spreadbet trade rebates on the comparison tool, there doesn’t seem to be a column for rebates?
Have you a list of brokers that offer rebates?
I have seen that intertrader and capitalspreads promote rebates on their website, however there is a minimum level of trading which I may not reach at the moment.

 

Thanks to Matthew for asking us about spread betting rebate programs.

Rebates are a relatively new form of promotion from spread betting companies and are becoming more popular as brokers tend to play “keep up with the Joneses”.

What exactly are spread betting rebates?

Rebates are a way spread betting brokers instill loyalty in their clients.  Bigger clients who trade a certain amount get a credit (often monthly) back into their account as cash.  It may seem unfair that smaller clients don’t get rebates, but in the financial services industry (in fact any industry) it is fairly standard practice.  Rebates work on the basis that the more business you do the lower your trading costs should be, a scaled form of commission discounting as it where.

Of course there is no commission in spread betting, instead brokers earn their money by widening the spread of a quoted market.  So if the FTSE is trading 6785 bid 6785.5 offered the spread betting broker will quote 6785 bid 6786 offered.  They have widened the spread by 0.5 and that 0.5 is the clients trading costs.

For professional traders trading the FTSE via DMA (Direct Market Access) they will trade on the true prices, but will pay exchange fees and also a commission.  The exchanges fees go to the exchange that provide the liquidity and the commission goes to the broker who provices access through their exchange membership.  Usually, commission rates are volume based, so if a customer trades 20 lots a month, they would pay more commission (probably about £10 per lot) than a trader who’s volume is around 5,000 lots per month (probably around £1) per lot.

To give you an idea of what that relates in to position size, one lot in the FTSE equates to £10 per point or around £67,850 in exposure based on today’s FTSE Price (6785).  Spread betting is actually one of the most cost effective ways to trade the market as the broker wraps all these costs into the spread and your profits are tax free.

It would be a huge administrative task to provide different spreads for different clients.  So brokers keep all client spreads the same then bigger clients simply get a percentage of their trading costs back at the end of each month.  This would be equivalent of a reduction in spreads of 5% to 20% depending on the broker.

What is better welcome bonuses or rebates?

Welcome bonuses and rebates are similar but not quite the same.

A rebate is an ongoing incentive a broker provides to good clients in order to maintain their business.

A welcome bonus is an incentive a broker uses to get new customers. However, a welcome bonus is essentially a rebate as you have to trade a certain amount before you can claim it.  In other words, a broker will ensure you trade at least double in spreads before you are credited anything back.  This way, they still get their income, but are offering new clients discounted spreads and trading costs for a period when their account is first opened.

Which brokers offer the best rebate programs?

Here is a quick summary of the major spread betting brokers in the UK and what rebate programs they offer:

ETX Capital – none – but do offer a £6,000 welcome bonus (recommended broker)

Core Spreads – none – but do offer a £10,000 welcome bonus

Investors Intelligence Spread Betting – none – Premium services are included

IG – none advertised – no welcome bonus

CMC – Yes, for high volume traders

Capital Spreads – Yes – £1,000 max rebate

Spreadex – No – But you can get an iPad if you open a new account

InterTrader – Yes – between 5% and 10% for over £500 in fees

FinSpreads – No

City Index – No

If you are trading with less than £50k in your account it is probably more cost effective to sign up with a broker who offers a good welcome bonus.

If you have a question about spread betting please don’t hesitate to ask!

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