## SPREAD BETTING EXAMPLES – HOW IT WORKS

Spread betting lets you back your judgement in the financial markets. You BUY or SELL a market for a certain stake per point. The more right you are, the more you make, and vice versa. Let’s see how spread betting works in practice.

If the FTSE 100 currently stands at 7320.6, we may quote 7320.1-7321.1 for our UK 100 (Rolling Daily) bet. This is a fixed spread of 1 point.

If you believe the price will rise you should BUY (or make an Up Bet) at 7321.1. If you believe the price will fall you should SELL (or make a Down Bet) at 7320.1.

Say you decide to sell at 7320.1 with a stake of £5 per point:

#### Scenario 1: price falls

The FTSE 100 falls to 7197.6 and our UK 100 quote now stands at 7197.1-7198.1. To close your original sell bet you need to buy at 7198.1. Here’s how this works out:

SELL Price 7320.1 7198.1 122 points £5 per point £610

#### Scenario 2: price rises

The FTSE rises to 7410.0 and our UK 100 quote is now 7409.5-7410.5. To close your original sell bet you need to buy at 7410.5. Here’s the calculation:

SELL Price 7320.1 7410.5 90.4 points £5 per point £452

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 calculated as a percentage of the full value of your position. Trading on margin (also known as taking a ‘leveraged’ position) enhances the potential return on your capital, but also creates an equal possibility for losses, if the price moves in an unfavourable direction.

Your initial margin requirement is determined by the margin percentage for the market concerned. You multiply your stake by your opening level to give your position value, and then multiply this amount by the margin percentage. Please note, however, that you may lose more than your initial margin.

We offer different margin rates for retail and professional clients, so that greater degrees of leverage are only available to more experienced traders.

Professional clients on our web-based or advanced platforms can also reduce margin requirements by using stop-loss orders. This is known as order-aware margining. Your margin is then calculated as 50% of the normal margin requirement, plus your risk per point multiplied by your stop distance (so long as this total is less than the normal margin requirement).

To see the margin percentages for all our markets please refer to the ‘i’ button on the platform or our Market Info tables. You should note that stop-losses are not guaranteed and may be subject to slippage and market gaps in volatile market conditions.

#### Example 1: UK 100 (Rolling Daily) – no stop

You want to open a £2 per point position on our UK 100 market. The margin percentage for UK 100 (Rolling Daily) is 5% (for retail clients), so the initial margin you need to open this position, supposing your opening level is 7000, would be:

Margin percentage 5% (retail client) £2 £2 x 7000 = £14,000 £14,000 x 5% = £700

#### Example 2: Wall Street (Rolling Daily) – pro client with stop

You decide to open a £1 per point position on Wall Street with a stop 20 points from your opening level. The margin percentage for Wall Street (Rolling Daily) is 0.5% (for pro clients), and suppose your opening level is 22,200. You would need the following margin to open this position:

Margin percentage 0.5% (pro client) £1 £1 x 22,200 = £22,200 20 points ((£22,200 x 0.5%) x 50%) + (£1 x 20) = £75.50

In this example you have reduced your initial margin requirement from £111 to £75.50 by attaching a stop-loss to your position.

You can also open your position without a stop-loss and attach a stop to it later. This would also have the effect of reducing your margin requirement on the open position. Remember, this applies to pro clients (on the web-based platform) only.

Note that, if you choose a large stop distance, so that this calculation exceeds the normal margin requirement, your margin is capped at the normal level, in this case £111.

#### Next steps

For more detail on margin calculations, and further examples, please see our FAQs. There are several ways to find out more about spread betting:

*UK taxpayers only. Tax treatment depends on the individual circumstances of each client and may change in the future.