Spread Betting Example

The best way to explain how Spread betting works is through an example, but before we get started, read these three quick definitions that will be helpful in the example:

Margin – the fractional amount of the trade value required as a deposit
Financing charge – the fee you are required to pay for trading on margin
Libor – the base interest rate that banks receive

See our jargon buster section later on for more information.

• ABC Corp. is trading at 1.59/1.60 and you think the price is going to rise in value.
• You decide to place a buy bet so you buy ABC Corp. at 1.60
• Since you are new to spread betting you trade the minimum amount of £1 per point. The value of your position will £1 per point x 160 points = £160.
• Let’s say that your margin requirement for ABC Corp. is 5% therefore £8 (5% of £160) will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £8 initial margin.
• You place a buy bet at 1.60 on ABC Corp. at £1 per point.
• Two days later you see that ABC Corp. has risen to 1.85/1.86. Therefore you choose to sell at 1.85 and realise your profit.

• You bought at 1.60 and sold at 1.85 which means ABC Corp. rose by 25 points.

  25 points x £1 per point = £25 profit. If the market had moved against you and you sold ABC corp. at 1.35, then you would have incurred a £25 loss.

• You held the position for two days which means you incurred two nights financing charge. This is how you calculate the financing charge; £160 (value of the position) x Libor + 3% (which for this example = 8%) /365 (number of days in the year) x 2 (number of days position is held)= 7p
• Therefore you deduct the financing from the total revenue and realise a profit of £24.93, all from an initial outlay of only £8. Remember, if the market had moved against you then you would have incurred a loss of £25.07 (£25 loss +7p financing = £25.07), which is more than the initial £8 outlay.