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.

How to spread bet

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 Price7320.1
BUY Price7198.1
Difference122 points
Stake£5 per point
Tax-free* profit£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 Price7320.1
BUY Price7410.5
Difference90.4 points
Stake£5 per point
Loss£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) 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 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.

With our web-based platform you can reduce your margin requirement by placing a stop-loss on your position, which helps to limit your risk. When you have a stop-loss attached to your position your margin is 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 0.5%, so the initial margin you need to open this position, supposing your opening level is 7000, would be:

Margin percentage0.5%
Stake per point£2
Value of position£2 x 7000 = £14,000
Margin required£14,000 x 0.5% = £70

 

Example 2: Wall Street (Rolling Daily) – 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%, and suppose your opening level is 22,200. You would need the following margin to open this position:

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.

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.

Maximum percentage0.5%
Stake per point£1
Value of position£1 x 22,200 = £22,200
Stop distance20 points
Margin required((£22,200 x 0.5%) x 50%) + (£1 x 20) = £75.50

 

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.

Open an account now

It’s free to open an account, can take less than five minutes, and there’s no obligation to fund or trade

CREATE YOUR ACCOUNT RISK-FREE DEMO
Losses can exceed deposits

Spread betting and CFD trading are leveraged products and as such carry a high level of risk to your capital which can result in losses greater than your initial deposit. These products may not be suitable for all investors. CFDs are not suitable for pension building and income. Ensure you fully understand all risks involved and seek independent advice if necessary.

InterTrader is a trading name of InterTrader Limited which is owned and controlled by GVC Holdings PLC. InterTrader Limited is authorised and regulated by the Gibraltar Financial Services Commission and registered with the Financial Conduct Authority in the UK, ref 597312. Registered address: Suite 6, Atlantic Suites, Europort Avenue, Gibraltar.