Spread betting examples

Spread betting is a derivative product that allows traders to speculate on the price movements of thousands of financial instruments, including shares, currency pairs and indices. This article explains how you can go long or short on the financial markets, depending on whether you expect prices to rise or fall through spread betting on shares and the UK 100. For each scenario, we calculate the potential profit or loss for the trade.

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

Spread betting on shares example

For the first example, we will spread bet on ABC Company shares, where we can find the following information on our trading platform:

Sell price = 100
Buy price = 102
Spread = 2 (difference between sell and buy price)
Margin rate = 5%

If you think that the price of ABC Company will go up, you can go long and open a buy position. Let’s say that you open a long position at £2 per point. As the margin for this asset is 5%, you will only need to deposit 5% of the total position’s value, as our platform uses leverage. To calculate your position margin, you can use the below formula.

Spread betting margin calculator:

(5% x (£2 x 102)) = £10.20

Remember that trading with leverage is a double-edged sword, meaning that if the price moves against you, it is possible to lose more than your initial deposit of £10.20, as losses are 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 a new sell price of 152 and buy price of 154. You decide to close your position at the current sell price.

Spread betting profit calculator:

As you bought the share for 102 and sold it at 152, the price has moved 50 points in your favour. To calculate your profit, multiply this by your stake of £2.

Profit = £2 x 50 = £100

Outcome B: losing bet

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

Spread betting loss calculator:

As you bought the share for 102 and sold it at 72, the price has moved 30 points against you. To calculate your loss, multiply this by your stake of £2.

Loss = £2 x 30 = £60

Spread betting on indices example: going long

For the second example, we will spread bet the UK 100 index by opening a long position, where we can find the following information on our trading platform:

Sell price = 5789
Buy price = 5790
Spread = 1
Margin rate = 0.25%

If you think that the price of the UK 100 will go up, you can go long and open a buy position at £2 per point. As the margin for this asset is 0.25%, you will only need to deposit 0.25% of the full trade value, which is calculated below.

Spread betting margin calculator:

(0.25% x (£2 x 5790)) = £28.95

Outcome A: winning bet

Your prediction was correct and the price rises over the next hour to a new sell price of 5830 and buy price of 5831. You decide to close your position at the current sell price.

Spread betting profit calculator:

As you opened a long position on the index for 5790 and closed out at 5830, the price has moved 40 points in your favour. To calculate your profit, multiply this by your stake of £2.

Profit = £2 x 40 = £80

Outcome B: losing bet

Unfortunately, your prediction was wrong and the price of the UK 100 drops over the next hour to a new sell price of 5750 and buy price of 5751. You feel that the price is likely to continue dropping, so to limit your losses, you decide to sell at the current sell price to close the position.

Spread betting loss calculator:

As you opened a long position on the index for 5790 and closed out at 5750, the price has moved 40 points against you. To calculate your loss, multiply this by your stake of £2.

Loss = £2 x 40 = £80

Spread bet on 10,000+ financial instruments

Spread betting on indices example: going short

For the third example, we will spread bet on the UK 100 index by opening a short position, using the same information as in the second example. If you think that the price of the UK 100 will go down, you can open a sell position and go short on the asset at £2 per point.

Spread betting margin calculator:

(0.25% x (£2 x 5789)) = £28.95

Outcome A: winning bet

Your prediction was correct and the price goes down over the next hour to a new sell price of 5757 and buy price of 5758. You decide to close your sell bet by opening a new long position at the current buy price.

Spread betting profit calculator:

As you went short on the index for 5789 and then opened a buy position at 5758, the price has moved 31 points in your favour. To calculate your profit, multiply this by your stake of £2.

Profit = £2 x 31 = £62

Outcome B: losing bet

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

Spread betting loss calculator:

As you went short on the index for 5789 and then opened a buy position at 5820, the price has moved 31 points against you. To calculate your loss, multiply this by your stake of £2.

Loss = £2 x 31 = £62

See more spread betting examples in our guide on how to spread bet, which comes with a step-by-step video tutorial.

Spread betting holding costs

The above spread betting examples will also incur extra trading costs. For example, if you hold any position after 5pm New York time, you will be charged an overnight spread betting 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%. This is 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 and shares. 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.

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