What is spread betting?
Spread betting lets you back your judgement in the financial markets. Instead of buying shares or a futures contract, you make a bet against the price movement of a particular market. You either BUY or SELL the market for a certain stake per point. As the price of the market moves, you make or lose the amount of your stake for each point the price has risen or fallen from your opening price.
So the more right you are, the more you make, and vice versa. Let’s see how spread betting works in practice.
How to spread bet
If you believe the price will rise you should BUY (or make an Up Bet) at 6642.1. If you believe the price will fall you should SELL (or make a Down Bet) at 6641.1.
Say you decide to sell at 6641.1 with a stake of £5 per point:
Watch our video for an introduction to spread betting with InterTrader.com, 2013’s Top Value-for-Money broker.
Scenario 1: price falls
The FTSE 100 falls to 6518.6 and our UK 100 quote now stands at 6518.1-6519.1. To close your original sell bet you need to buy at 6519.1. Here’s how this works out:
|Stake||£5 per point|
Scenario 2: price rises
The FTSE rises to 6731.0 and our UK 100 quote is now 6730.5-6731.5. To close your original sell bet you need to buy at 6731.5. Here’s the calculation:
|Stake||£5 per point|
While your position is open you can see your running profit or loss on the trading platform. Your final profit or loss is only realised when you close your position.
How does margin work?
To open a spread betting position you put down a deposit, known as ‘margin’. This is a fraction of the full value of your position. Trading on margin (also known as taking a ‘leveraged’ position) greatly enhances the potential return on your capital, but also creates an equal possibility for losses, if the price moves in an unfavourable direction.
Your margin is determined by the level of your stop-loss order, as this indicates your potential loss on the position. You should note, however, that you can lose more than your initial margin, unless you choose to make your stop-loss a Guaranteed Stop (for a small premium).
Generally your stop-loss level will cover losses equal to 80% of your margin requirement, subject to our minimum and maximum margin requirements.
For each market we quote a minimum Initial Margin (IM) figure, which determines the minimum margin amount required to open a position. This is calculated as a percentage of the total value of your position.
We also quote a maximum IM percentage, which determines the maximum margin we will take if you don’t set your stop level when your open your position. Remember, if you don’t set your own stop it will be placed automatically. To see the minimum and maximum IM percentages for all our markets please refer to the ‘i’ button on the platform or our Market Info tables.
Example 1: UK 100 (Rolling Daily)
You want to open a £2 per point position on our UK 100 market. The minimum IM for UK 100 (Rolling Daily) is 0.3%, so the minimum margin you need to open this position, supposing your opening level is 6100, would be:
To open this position with a margin of £36.60 you would need to set your stop level 14.6 points from your opening level, as 80% of £36.60 is £29.28, which equals 14.6 points at £2 per point.
|Stake per point||£2|
|Value of position||£2 x 6100 = £12,200|
|Margin required||£12,200 x 0.3% = £36.60|
Example 2: Wall Street (Rolling Daily)
You decide to open a £1 per point position on Wall Street without setting your own stop level. The maximum IM for Wall Street (Rolling Daily) is 1.2%, and suppose your opening level is 16500. We will then take the following margin (subject to there being sufficient funds on your spread betting account):
In this case your stop level would be set automatically 158.4 points from your opening level, as 80% of £198 is £158.40, which equals 158.4 points at £1 per point.
If you have less than £198 on your account (but more than the minimum margin requirement for this market), we will take this amount as margin and set your stop level automatically to cover losses equal to 80% of this amount.
|Stake per point||£1
|Value of position||£1 x 16500 = £16,500|
|Margin required||£16,500 x 1.2% = £198
Margin on forex and commodities
For spread bets on forex, commodities, bonds and interest rates, the minimum and maximum IM figures are given as a number of points, which you multiply by your stake per point to calculate your margin requirement. (This calculation is independent of your opening level.)
Example 3: Silver (Futures)
You want to open a £3 per point position on Silver (Futures). Our minimum IM for all this market is 50, so the minimum margin you need to open this position is:
To open this position with a margin of £150 you would need to set your stop level 40 points from your opening level, as 80% of £150 is £120, which equals 40 points at £3 per point.
|Stake per point||£3
|Margin required||50 x £3 = £150|
For more detail on margin calculations, and further examples, please see our FAQs. There are several ways to find out more about spread betting:
- Open an online Demo Account and place your first virtual spread bets risk-free
- Check out our User Manual to see how to use our online platform
- Find out how to Start Spread Betting with InterTrader.com
- Follow our Spread Betting Tips to work out the strategy that suits your trading needs
- Find out about 100% market-neutral spread betting with InterTrader Direct
(This link will take you away from InterTrader.com where you can set up a separate InterTrader Direct GFSC-regulated account.)