Examples
FTSE® DFB
Looking at an example is a great way of developing a better understanding of how spread betting works.
All our bets essentially work in the same way; we quote a price for a market expiring at some time in the future and you make a bet based on whether you think the market will be higher or lower than our quote by that time.
The diagram below walks you through a bet on one our most popular markets, the FTSE® DFB, where you bet against the daily settlement price of the FTSE® 100.
You decide you want to bet on the short-term direction of the FTSE® 100.
Our FTSE® DFB price in mid March is quoted at 5634 – 5635.
This means you can ‘sell’ at 5634 or ‘buy’ at 5635 (‘buy’ transactions are made at the higher end of the spread and ‘sell’ at the lower end).
We quote 5634 – 5635
Sell
You think the market is going to fall, so you choose to ‘sell’. You decide to risk £10 per point.
You ‘sell’ £10 per point at 5634
Against your expectations, the market rises. You opt to cut your losses and close your bet in case the market moves further against you.
At midday the price we quote is
5652 – 5653
To close a ‘sell’ bet you simply ‘buy’ at the top end of the spread
You ‘buy’ £10 per point at 5653
Your loss is calculated as follows:
| Opening price | 5634 |
| Closing price | 5653 |
| Difference | 19 |
Loss: 19 x £10 = £190
Buy
You think the market is going to rise, so you choose to ‘buy’. You decide to risk £10 per point.
You ‘buy’ £10 per point at 5635
As you predicted, the market rises in the afternoon and you choose to take your profit
At midday the price we quote is
5652 – 5653
To close a ‘buy’ bet you simply ‘sell’ at the bottom end of the spread
You ‘sell’ £10 per point at 5652
Your profit is calculated as follows:
| Opening price | 5635 |
| Closing price | 5652 |
| Difference | 17 |
Win: 17 x £10 = £170
'Buying' Vodafone
Spread betting on individual shares gives you exposure to corporate movement for a fraction of the initial outlay of buying the shares outright.
Say Vodafone is trading in the market at 124.3/124.6p. Our daily quote for Vodafone stands at 124.1 - 124.8, and you decide to 'buy' £50/point at 124.8, our offer price. To open this position, we require deposit of £312.00 - being 5% (deposit factor for Plus Account holders) x £50 (bet size) x 124.8 (opening level).
With this bet you will make £50 for every point that our 'sell' (bid) price (the price at which you can close the position) rises above 124.8 and lose £50 for every point the bid price falls below 124.8.
Our live price for Vodafone updates with every market move throughout the trading day. By mid-afternoon our daily quote has reached 127.1 - 127.8 and you decide to take your profit.
You close your bet by 'selling' £50/point at 127.1, our bid price. You have made (127.1 - 124.8) x £50 = £115. And with no tax to pay!
However, please note that had the price moved against you, you could have lost more than your initial deposit.
Compare the cost of purchasing shares
Your £50/point bet produces a result equivalent to buying 5000 Vodafone shares: with a conventional share holding at this level, each penny movement in the price would also be worth £50 to you. However, the initial outlay to open your spread bet is much more modest:
- Cost to buy 5000 Vodafone shares: 5000 x 1.248 = £6240.00
- Cost to place equivalent spread bet: 50 x 124.8 = £6240 (Deposit of 5% required for Plus Account holders = £312)
By choosing the spread-betting route you have also avoided paying any commission or brokerage fees, capital gains tax or stamp duty*. The only charge is our dealing spread. You should, however, be aware that your maximum potential loss is the same whether you spread bet or buy the equivalent shares.
*This depends on individual circumstances and may be subject to change in the future. Tax law may differ in a jurisdiction other than the UK.
Buying the euro
A controlled risk bet, using a Guaranteed Stop, is the ideal way to put an absolute cap on your risk.
The example below shows you how this device can help you guard against losses.
It is December and you believe that Wall Street is set to fall over the next few months. You check our live price for March Wall Street and we are quoting 10396 – 10404.
You make the decision to 'sell' £15 per point, but want to limit your risk. The opening price for a controlled risk 'sell' is our bid price minus our controlled risk premium of 4:
10396 – 4 = 10392
You do not want to lose any more than £900 on this bet, so at £15 per point you can only afford the market to move 60 points against you – in this case up to 10452 from your ‘sell’ price of 10392.
You decide to put your Guaranteed Stop at 10450, risking a move of 58 points or £870 (58 x £15) against you. This ensures your bet will be automatically closed if the market rises to this level.
A few days after opening the bet, Wall Street does fall. Do you want to take your profit?
Yes
You check our current March Wall Street price. We quote 10192 – 10200
To close this 'sell' bet you 'buy' £15 per point at the offer price of 10200
Your profit is calculated as follows:
| Opening price | 10392 |
| Closing price | 10200 |
| Difference | 192 |
Win: 192 x £15 = £2880
No
You decide to leave your bet open, but your decision seems to be the wrong one as Wall Street makes rapid gains and trades up strongly to 10550.
With no risk control in place, you would be running a significant loss. However, your Guaranteed Stop kicked in and your position was automatically closed when Wall Street reached 10450.
Your loss is calculated as follows::
| Opening price | 10392 |
| Closing price | 10450 |
| Difference | 58 |
Lose 58 x £15 = £870