Spread (economy)

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As Spread ( English spread for, margin ') is referred to in the industry generally, the difference between two unit equal to comparative economic variables.

General

The anglicism “spread” describes the range, spread or difference between two comparable economic values. As an indicator , the spread is used in particular in securities trading and in economics . The general rule here is that the wider a spread, the higher the credit , market and liquidity risks and the higher the profit margins and vice versa. The spread is a business figure and is one of the most important market data in finance .

species

A distinction is made between price-related, interest-related, forward-related spreads and the spreads in options trading.

Rate-related spreads

The bid-ask spread ( English bid-ask spread ) is in securities , foreign exchange , varieties , precious metals ( financial instruments ) and goods ( English Commodities ) the difference between bid and ask price . It is also known as market breadth and is a measure of liquidity, since it indicates the transaction costs of market participants .

The bid-ask spread reflects the gross profit margin of the credit institutions and other market participants. They sell from their perspective at the higher ask price ( english ask ) and buy at the lower bid price ( English bid ). Bid and ask prices are available on the stock exchange as well as in over-the-counter trading . The course additions for this are "G" and "B". In the case of securities, however, this means that there was no stock exchange turnover and either there was demand , but no offer ("G") at the bid price, or that there was an offer but no demand at the requested price ("B").

In the market making of Jumbo Pfandbriefe , the spread is fixed and depends on the term. For terms of up to three years, the spread is 0.05 euro cents , 3–6 years 0.06 euro cents, over 6 years up to and including 8 years 0.08 euro cents and beyond that 0.10 euro cents. The spread signals to the market maker , whether he received a long or short position again to close out can.

A distinction can also be made between the explicit and the implicit bid-ask spread. While the explicit bid-ask spread can be determined immediately from actual bid and ask prices, the implicit bid-ask spread is an estimate based on previous transactions and yields .

In foreign exchange business also, the difference between the spot rate ( English spot price ) and forward rate ( English forward price ) as a spread. Wherein the difference between the two rates is quantity rate Deport (reduction) when the forward rate is below the spot price or Report (charge) when the forward rate is higher than the spot rate. In the case of foreign exchange swaps , which consist of a combination of a spot transaction with a forward transaction , the spot rate and the forward rate are of interest. The difference between the two rates is the spread, which in this case is called the swap rate . In the case of commodities , the spread between spot and forward rate includes the cost of capital and storage costs as well as the premium for the immediate availability of the underlying. In the case of raw materials, there is usually a deport market ( English backwardation ) on which the market value for immediate availability predominates and therefore the spot prices are higher than the forward prices. The opposite with higher forward rates is called contango ; both are suitable for speculation and arbitrage.

The exchange rate ranges in the foreign exchange market in times of fixed exchange rates were fixed rate spreads between the bid and offer rates , which were not allowed to fall below or exceed. This exchange rate regime no longer exists since the introduction of the euro in January 1999, so that foreign currencies can fluctuate freely within the framework of floating . What remains for foreign exchange are the spreads between the bid and ask rates.

Interest-related spreads

The interest rate differentials from the different interest rate levels on the money and capital markets are also referred to as interest rate spreads. The difference between long-term interest rates on the capital market and short-term interest rates on the money market is known as the stylistic yield curve . A comparison between 10-year and 3-month interest rates is common. The difference between the nominal value and the market value of a security represents the future expected return. This difference is determined in particular by the risk-free market interest rate and the interest rate spread. The interest rate spread is an indicator of macroeconomic phenomena. Expansive effects are ascribed to a steep yield curve with low interest rates in the money market and vice versa.

The difference in return on a bond versus the comparable risk-free interest rate (for the same term) is known as the credit spread . It depends on the creditworthiness of the debtor and provides a risk measure for the default risk - more precisely, it corresponds precisely to the price that is paid on the market for the associated default risk. The amount of the credit spread does not only depend on the term and the debtor's creditworthiness, it is itself also subject to market fluctuations. The resulting risk for the investor - together with the risk of a debtor's credit rating change - is referred to as the spread risk .

For example, it is common not to specify the absolute return on a corporate bond, but rather the credit premium compared to a government bond with the best credit rating, which is considered largely risk-free . The higher the credit spread, the higher the credit risk of a bond. The prices of credit default swaps (CDS, i.e. credit default swap transactions) are known as CDS spreads and are available for numerous issuers and various remaining terms via stock exchange information systems.

Forward related spreads

In futures trading, the term “spread” or “straddle” refers to the simultaneous purchase and sale of futures transactions with different maturities on the same market , with different underlyings or on different exchanges (the latter case is better known as arbitrage ). These spread transactions are not aimed at absolute price changes in a futures contract, but rather at a change in the price difference between the futures contract that has been purchased and the one that has been sold.

Option strategy

An option strategy for derivatives is also called a spread. It means that two options of the same type (buy or sell) are bought and sold at the same time , with the only difference between the two options in terms of the strike price or expiry date . If the option price of the option sold is higher than that of the option bought, there is a surplus. With the help of such a spread that can risk over the sole purchase (or sale) of purchase options ( English calls ) or put options ( English Puts ) are more limited because the maximum gain or loss is established from the outset. The higher-level types of price spreads are bull spreads (English bull spreads , with rising prices) and bear spreads (English bear spreads , with falling prices). Their subspecies are called Bull Call Spread and Bull Put Spread as well as Bear Call Spread and Bear Put Spread . Bull spreads and bear spreads are linked by the butterfly spread .

meaning

Spreads are often seen as leading indicators because they can provide information on how a risk is to be assessed now and how it may develop in the future. Spreads are regularly comparative figures that can be used to make risk forecasts. A comparison of rating and credit spread, for example, shows that a change in the credit spread occurs earlier than the rating migration . The rating agencies usually react with a time delay to changes in risk that have occurred, while the market indicates these changes at an early stage using spreads.

See also

Web links

Individual evidence

  1. Dennis Metz, Foreign Exchange , 2007, p. 34
  2. Oded Sarig / Arthur Warga, Bond Price Data and Bond Market Liquidity , 1989, p. 370
  3. Till Gombert, book liquidity, presence liquidity and bidding behavior , 2005, p. 77
  4. Marc Engelbrecht, Asset Allocation in Private Banking , 2015, p. 144
  5. Ralph Anderegg, Fundamentals of Monetary Theory and Monetary Policy , 2007, p. 124
  6. Hans Schulz, Successful futures trading , 1984, p. 21
  7. Heiko Staroßom, Corporate Finance , Part 1, 2013, p. 173
  8. Heiko Staroßom, Corporate Finance , Part 1, 2013, p. 173
  9. Andrea Resti / Andrea Sironi, The Basel Committee Approach To Risk-Weights And External Ratings: What Do We Learn From Bond Spreads? , 2005, p. 9