Definition of short sterling contract

Investors could make money by betting where they think interest rates will go.

A common way to bet on interest rates is via short sterling contracts, which is directly affected by interest rate movements.  Examples include contracts for difference and spread betting.

These bets try to predict where interest rates will be when the contract expires.

In January 2008, when investor sentiment was particularly gloomy, the June 2008 short sterling contract at Capital Spreads (UK spread betting company) was trading at about 95, meaning that betters thought interest rates would be 5 per cent by that summer.

But later on, the price was around 94.10, meaning the market thought that UK interest rates would be about 5.9 per cent at the end of June 2008. [1]

Go from puppet to player on rates

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