Spread Betting Guide > Financial Markets

Financial Spread Betting Guide

UK 100 Daily

You have been reading the morning business papers over breakfast and decide that the UK 100 Daily should rise on the day. So, you decide to go online (www.spreadex.com) or call our trading room and request the UK 100 Daily market from one of our traders. (This market is based on where the FTSE index closes on a daily basis)

You are quoted 5903 - 5907 at 8:30am, and based on your judgement, decide to BUY at the offer price, 5907 expecting the UK 100 Daily to rise on the day, and nominate a stake of £10 a point.

Throughout the day the market does indeed rise and closes higher at 5950.Your profit is calculated by taking the difference between the closing level (5950) and the opening price (5907).

Profit on day = (5950 - 5907) x £10 stake

= 43 x £10

= £430

If the UK 100 Daily had fallen and closed at 5900, you would have had a loss of

Loss on day = (5907 - 5900) x £10

= £70

Barclays Share

You wish to purchase some shares in Barclays for the short term. You phone Spreadex and ask for a Barclays September quote (or go online to trade at www.spreadex.com). Our quote for where Barclays share price will be on the closing day of the September contract is 659.8p - 664.3p.

You think Barclays share price will rise during the month, and so you BUY £100 per penny movement at the offer price of 664.3p. This is the monetary equivalent of buying 10,000 shares, as each penny movement in the share price will win or lose you £100. If you thought, however, the price would fall, you would have sold at the bid price, 659.8p.

We do not charge commission on the trade or stamp duty, as all of our costs are included in the spread at which you trade.

With a stockbroker you would need to put up £66,430 for this trade. However Spreadex would only require 3% (subject to client status) of this sum to be in your account to place the trade. In this case 3% x £66,430 = £1,993

In this example, Barclays share price rises and three weeks later you ring again and ask for Barclays September. You are now quoted 682p - 686.5p. You sell your £100 stake at our bid price of 682p, therefore closing the position.

In this situation you have won. Your profit is:

Closing Price less Opening Price x Stake = Profit

i.e. (682-664.3) x 100 = £1,770

If however you had sold in this situation you would have lost £100 per point as the stock has moved against you.

Because this is a spread bet, any winnings are tax free under current legislation.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Gold

Can the recent rise in the price of gold continue?

You do not think it's sustainable, and after checking the Spreadex price by calling our trading room or going online (www.spreadex.com), you decide to sell the June contract. The market is currently trading at 623.2 - 624.6, and is traded per 0.1 point.

You sell £5 per point (0.1) at the bid price 623.2 and your judgement is proved correct when the price of gold falls. Your position closes at expiry at 605, realising a profit of:

Profit = (623.2 - 605) / 0.1 x £5 stake

= 182 points x £5 stake

= £910

If the price started rising after you had traded, and you decided to cut your losses, you may have decided to close at the current offer price of 630. In this case, your losses would be:

Loss = (630 - 623.2) / 0.1 x £5

= 68 points x £5 stake

= £340

Foreign Exchange

It's March, and you are planning a family holiday in late August to the US, but you have a slight dilemma. The exchange rate of Sterling against the US Dollar today is strong and you are confident that Sterling cannot hold at this level for long, but you also do not want to tie up your money by exchanging it now.

So, you call Spreadex and ask for (or go online to view at www.spreadex.com) our Sterling/US Dollar September exchange rate and are quoted 1.7984-1.7992 (remember, if you expect Sterling (£) to rise against the US Dollar ($) you would BUY at the offer price, 1.7992 and alternatively, if you expected Sterling to fall against the US Dollar, you would SELL at the bid price, 1.7984).

You decide after receiving your quote to SELL at the bid price (1.7984) and nominate a stake per point movement (0.0001) of 4

As a result of strong economic statistics from the US, the price of Sterling () falls against the US Dollar ($), so you decide to telephone us back or go online for a new price and are quoted 1.7842-1.7850

You decide to close your position and therefore BUY at the offer price, 1.7850, realising a profit of 536. i.e. (1.7984 - 1.7850) x 4 = 536

If Sterling had risen against the US Dollar and you let your position expire (in September) at 1.8008 you would incur a small loss of 96, i.e. (1.8008 - 1.7984) x 4 = 96

Limiting Your Risk

With Spreadex, you are able to place a Stop'* order against a trade, either at the time of doing the trade or after the event. Both online and on the phone.

A Stop'* order can be described as an instruction to us to close the trade to which it is attached at a price less favourable to you than the current price.

Let's say you have a trade open, buying 10 of Barclays shares at a price of 715. You have read about possible takeover rumours in the news, but are worried that the price may drop if they do not come to fruition.

To limit your risk, you could place a Stop'* order to Sell at, say, a price level of 690. This means that when the Spreadex bid price touches or goes lower than 690, we will close your trade at the best available price, hence, (assuming we are able to achieve a price of 690), limiting your loss to (715-690) x 10 = 250

Please note: Sometimes the market may Gap through'* your Stop'* level (say, on an overnight move), resulting in your order being executed at the next best available price. See paragraph about Guaranteed Stops'* below.

Stop'* orders must be attached to an open trade, and will expire when the trade to which they are attached is closed or expires. They can be amended or cancelled during their lifetime (subject to credit)

You are also able to Guarantee'* your Stop'* for a small premium. This means that, given the example above, a Guaranteed Stop'* would be executed at 690, regardless of whether the market gapped through'* on the open to, say, 654-658, where an un-guaranteed Stop'* would get executed at 654.

Please note: Guaranteed Stops'* may only be placed simultaneously with executing the trade to which they are attached. The premium chargeable is included in your price for the underlying trade.

Stop'* and Guaranteed Stop'* orders not only help to limit your risk, but will allow you to benefit from reduced Notional Trading Requirement (NTR), (if placed within NTR limits). Guaranteed Stop'* orders benefit to an even greater extent.

*Where available and subject to conditions. For a complete explanation of Stop' and Guaranteed Stop' orders and Gapping through' , please see Rule 11 of the Spreadex Customer Agreement' and the Spreadex Financial Handbook' (both available to download from Brochures & Guidelines)