Going Long

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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.

  1. 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
  2. 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
  3. 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

Your prediction is correct and 2 days later the share price rises by 20 points to 179.75 / 181.25.

  1. 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 +3% (which in this instance +8%) / 365 (number of days in the year = £0.04. 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 - £0.09) = £18.41

Outcome B: Losing trade

Your prediction is incorrect as the share price falls by 20 points to 139.75 / 141.25.

  1. You decide to close your trade and sell at 139.75
  2. You have lost 21.5 points (161.25 - 139.75) x £1 = minus £21.50 revenue
  3. You held the position for 2 days which means you have incurred 2 nights financing charge
  4. 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 +3% (which in this instance +8%) / 365 (number of days in the year = £0.04. The second night the share price is slightly lower and the financing charge is £0.02
  5. Therefore you add both night’s financing charges from the total revenue and realise a total loss of £21.56 (£21.50 + £0.06)

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 profit of £92.41 or a loss of £102.50. Trading with larger sizes increases your risk so make sure you understand the risks involved.

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