Spread Betting Examples

Example trade: Going Long

1. ABC Corp is trading at 159.75 / 161.25. You think that the new product they have just released will sell well and the share price will rise so you decide to buy
2. You place a buy bet (also known as going long) at 161.25 NB Share prices are quoted in pairs – the bid and the offer. The bid or ‘sell price’ is quoted first and the offer or ‘buy’ price is quoted second
3. Since you are new to Spread Betting you trade the minimum amount of £1 per point, which is the equivalent of 100 shares in the real market
4. ABC Corp is margined at 5% - this means that you only require 5% of the total position’s value and this will be allocated from your account as initial margin. In this example it will be £8.06 (5% x (£1 x 161.25)). Remember, if the share price moves against you it is possible to lose more than your initial £8.06 margin

Outcome A: Winning trade

1. Your prediction is correct and 2 days later the share price rises by 20 points to 179.75 / 181.25. You decide to close your trade and sell at 179.75
2. You have made 18.5 points (179.75 - 161.25) x £1 = £18.50 revenue. You held the position for 2 days which means you have incurred 2 nights financing charge.
3. The financing charge for the first night is £0.04. This is calculated by taking £161.25 (value of your exposure to the market at the end of each day) x LIBOR +2.5% (which in this instance +7.5%) / 365 (number of days in the year) = £0.03. The second night the share price is slightly higher and the financing charge is £0.05
4. Therefore you deduct both night’s financing charges from the total revenue and realise a total profit of (£18.50 - £0.08) = £18.42

Outcome B: Losing trade

1. Your prediction is incorrect as the share price falls by 18 points to 240.00 / 242.50.
2. You decide to close your position at a loss by buying back at 242.50. There is a difference of 20.5 points (222.00-242.50)X £1 which is a loss of £22.50 to you.
3. As you held the position overnight you are owed a financing charge. The financing charge is £0.01. This is calculated by taking £222(value of your exposure to the market)X LIBOR(assume 5%)+2.5%/365(number of days in the year)=£0.01.
4. You realise a total loss of £22.49.

This example uses a stake of £1 per point but you can trade in any multiples of £1, for example £3 or £10. If you had traded with a stake of £5 in this example you would have made a gross profit of £237.5 or a loss of £102.50 (plus or minus a financing). Trading with larger sizes increases our risk so make sure you understand the risks involved.

Going Short Example