Spread Betting Examples
A simple spread bet
If the FTSE 100 Index currently stands at 5341.6, InterTrader.com may quote 5341.1 (the sell price) to 5342.1 (the buy price). This quote (which has a 1-point spread) allows you the opportunity to bet that the value of the FTSE will fall or rise. If you believe that the value of the FTSE will fall, you should sell (or make a Down Bet) at 5341.1, or if you think the FTSE will rise, you would buy (or make an Up Bet) at 5342.1.
Assuming you decide to sell, the following example is based on a bet of £5 per point movement:
The market falls and you decide you would like to realise your profit. The FTSE 100 now stands at 5218.6 and our quote is 5218.1-5219.1. You will need to buy at 5219.1 to close your original sell bet. Similarly, if you had opened your position with a buy bet, you would need to sell to close.
In this example, if you close your position by buying at 5219.1 your winnings would be calculated as follows: 5341.1 – 5219.1 = 122 x £5 = £610.
Obviously if the market begins to rise above the level at which you sold you will incur a running loss. This is calculated in the same way as your profit.
What is margin?
What separates spread betting from traditional types of investments is the ability to “trade on margin.” Margin trading allows you to command larger position sizes using only a small deposit. For example, when trading on 10:1 margin, clients are only required to deposit 10% of the total value of the position. If you are interested in buying $100 in Microsoft stock, for example, you will only need to deposit $10 for that trade.
When trading on margin (also referred to as taking on a “leveraged” position), clients may be able to greatly enhance the profit potential since position sizes can be much larger than the size of your deposit. It should be noted though that margin trading creates an equally large possibility for losses, if the price moves in an unfavourable direction. Experienced traders generally recommend that margin trading and position sizes are approached with a conservative mindset.
How to calculate Initial Margin (IM)
The Initial Margin (IM) is the amount of unencumbered trading resources required to open each trade. The minimum IM is the minimum Initial Margin required to open a particular trade. You can calculate the minimum level of funds required to open a new position by multiplying the minimum IM by your stake. For example, the current minimum IM for the UK 100 Index Future is 30, therefore if you wish to trade £5 per point you need a minimum of £150 available funds on your account (30 x 5 = 150). The minimum IM varies depending upon the market. Please visit our Market Information pages for minimum IM levels for each market.
What is an Automatic Stop Loss Order?
We will automatically assign a stop loss order to every trade placed on your account. This stop loss is based on 80% of the Initial Margin that is applied to the trade. For instance, if you have £2000 in your account and you trade the UK100 Rolling Daily at £10 per point, the system will automatically allocate a stop loss 120 points away (because the maximum Initial Margin for the UK100 Rolling Daily is 150 and 80% of 150 is 120). You would also have £500 remaining as available funds on your account. Alternatively, if there are insufficient trading resources to cover the maximum Initial Margin, the system will allocate the stop level based upon 80% of the amount that was taken as Initial Margin, which would be the total trading resources available on your account. You may amend your stop loss to whatever level you desire, subject to the minimum stop loss distance for each market and the margin requirements. Although the automatic stop loss does go some way towards limiting your risk on your open trades, you must be aware that all orders including stop losses are subject to slippage and market gaps unless you specify for your stop loss to be guaranteed. The minimum and maximum Initial Margin requirements vary depending on the market.
What is the 'Net Change' figure displayed on your dealing platform?
This figure is based on our spread bet quotes and not the underlying market value. It shows the number of points that our quote for that product has moved since the close of business the previous day.