Spread betting examples

Using the UK 100 and spread betting shares as examples, see how you can go long or short on the financial markets, depending on whether you expect prices to rise or fall.

Please note: when spread betting equities, an additional spread is built in to the spread bet price displayed on the platform and is applicable upon execution of any order.

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Spread betting example 1: buying ABC Company shares

In this example, ABC Company is trading at 100/102 (where 100 is the sell price and 102 is the buy price). The spread is 2. Let's assume that you want to open a buy position (go long) at £2 per point because you think the price of ABC Company will go up.

Let's say that our margin rate for ABC Company is 5%, which means that you only have to deposit 5% of the total position's value (position margin) to place your trade. Therefore, in this example, your position margin will be £10.20 (5% x (£2 x 102)).

Remember that if the price moves against you, it is possible to lose more than your outlay of £10.20, as losses will be based on the full value of the position.

Outcome A: winning bet

Your prediction was correct and ABC Company shares rise in value over the next week to 152/154. You decide to close your buy bet by selling at 152 (the current sell price).

The price has moved 50 points (152 sell price – 102 buy price) in your favour. Multiply this by your stake of £2 to calculate your profit, which is £100.​

Outcome B: losing bet

Unfortunately, your prediction was wrong and the price of ABC Company drops over the next week to 72/74. You feel that the price is likely to continue dropping, so to limit your losses, you decide to sell at 72 (the current sell price) to close the bet.

The price has moved 30 points (102 - 72) against you. Multiply this by your stake of £2 to calculate your loss, which is £60.

Spread betting example 2: buying the UK 100

In this example the UK 100 is trading at 5789/5790 (sell price/buy price). Let's assume that you think the price of the UK 100 will go up and decide to go long (buy) at £2 per point. The UK 100 has a tier 1 margin rate of 0.25%, which means that you only have to deposit 0.25% of the total position's value as position margin.

Therefore, in this example your position margin will be £28.95 (0.25% x (£2 x 5790)).

Outcome A: winning spread bet

Remember: if the price moves against you, it is possible to lose more than your investment of £28.95.

Your prediction was correct and the price rises over the next hour to 5830/5831. You decide to close your buy bet by selling at 5830 (the current sell price).

The price has moved 40 points (5830 – 5790) in your favour. Multiply this by your stake of £2 to calculate your profit, which is £80.

Outcome B: losing spread bet

Unfortunately, your prediction was wrong and the price of the UK 100 drops over the next hour to 5750/5751. You feel the price is likely to continue dropping, so to limit your losses you decide to sell at 5750 (the current sell price) to close the bet.

The price has moved 40 points (5790 - 5750) against you. Multiply this by your stake of £2 to calculate your loss, which is £80.

Spread betting example 3: selling the UK 100

In this example, the UK 100 is trading at 5789/5790. You think the price will go down and decide to sell the UK 100 at £2 per point. Remember, prices are always quoted with the sell price on the left and buy price on the right.

The UK 100 has a tier 1 margin rate of 0.25%, which means that you only have to put forward 0.25% of the position's value as position margin. In this example, your position margin will be £28.95 (0.25% x (£2 x 5789)).

Remember that if the price moves against you, it is possible to lose more than your investment of £28.95.

Outcome A: winning spread bet

Your prediction was correct and the price goes down over the next hour to 5757/5758. You decide to close your sell bet by buying at 5758 (the current buy price).

The price has moved 31 points (5789 – 5758) in your favour. Multiply this by your stake of £2 to calculate your profit, which is £62.

Outcome B: losing spread bet

Unfortunately, your prediction was wrong and the price of the UK 100 rises over the next hour to 5819/5820. You feel that the price is likely to continue increasing, so to limit your losses you decide to buy at 5820 (the current buy price) to close the bet.

The price has moved 31 points (5820 – 5789) against you. Multiply this by your stake of £2 to calculate your loss, which is £62.

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Spread betting holding costs

If you hold any position after 5pm New York time, you will be charged a holding cost, or if the position has a fixed expiry the holding cost will be built into the price of the instrument.

We calculate the holding rate applicable to the holding cost based on the interbank lending rate of the currency in which the instrument is denominated. For example, the UK 100 (pound sterling) is based on the London Interbank Offered Rate (Libor). For buy positions, we charge 0.0082% above Libor and for sell positions you receive Libor minus 0.0082%, unless the underlying interbank rate is equal to or less than 0.0082%, in which case sell positions may incur a holding cost.

You can view the historic holding costs, per product, by clicking on the account menu and then the history tab. Learn more about some of the risks of spread betting.

FAQ

What is spread betting?

Spread betting is a financial derivative product that allows traders to speculate on the price movements on thousands of assets, including forex, indices, commodities, shares and cryptocurrencies. You open a position based on whether you think the price of an instruments will rise or fall, and can make a profit or a loss depending on whether the trade moves in your direction. Learn more about what is spread betting.

Is spread betting tax-free?

Spread betting is a tax-free way of trading in the UK, being exempt from capital gains tax and stamp duty. However, tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK. Learn more about spread betting.

How do you spread bet?

To learn how to spread bet, our spread betting for beginners guide provides more information on how to register for an account and deposit funds to begin trading, along with the risks of spread betting. Open a spread betting demo account to practise with virtual funds.

What are the best strategies for spread betting?

The most appropriate strategy to use when spread betting depends on a number of factors, including the instrument you’re trading, whether it’s a long or short position, and how volatile the market is. Discover our learn spread betting section for tips, strategies and trading guides.

How does spread betting differ to CFD trading?

Both spread betting and contracts for difference (CFDs) are derivative products that give a trader access to the underlying market, without taking ownership. Spread betting allows you to open a position based on speculation of whether you think an asset’s price will rise or fall, whereas CFDs are contracts that represent an agreement to exchange the difference in asset value between the time that the position is opened and closed. Learn more about the differences between spread betting and CFDs.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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