Spread betting is not risk free, and it is not automatic – you need some skill and drive to succeed. Take a look at these examples to find out how to better understand spread betting and boost your financial gains.
Understanding Spread Betting: Example 1
In this example you are interested in the Looks Company, which is trading currently at 100/102 – this means that the sell price stands at 100 and the buy prices is at 102, meaning that the spread stands at 2. You believe that the price of Looks Company will rise and you decide that you will open a buy position for £2. The margin rate when you trade with a trading company is set, at this instance, at 5 percent. Therefore you only need to pay 5 percent of the position margin in order to trade. In the example of Look Company you need to put down £10.20 which is 5 percent multiplied by £2 x 102.
Let’s say that your bet is a good one and that the shares in Looks Company go up in value. They increase in price to 152/154. You close your position and sell at the current sell price which is 152. As this price has shifted 50 points then you will calculate your profit by multiplying 50 by your original stake – £2. Therefore you get a total of £100.
Or let’s say that your bet is not good and that Looks Company decreases in value. It goes to 72/74. You sell at 72 and you close your position. As the position moved by 30 points you times this by your stake of £2 to make a £60 loss. In both these potential outcomes you can see the nature of spread betting – you have a big chance to maximise both profits and losses with a minimal down payment.
Understanding Spread Betting: Example 2
In this example you believe that the value of the UK 100, which is currently set at 5789/5790, will go up. You buy at £2. Because there is a margin rate of 0.25 percent you only have to put down 0.25 percent of the value when you open the position. If your prediction was right and the price of the UK 100 does rise, then you decide to sell and you close at 5830. As the price shifted 40 points you make a profit of £80. On the other hand, if the market falls in value you sell at 5750, after a move of 40 points, and your loss is therefore £80.
If you learn the basics of spread betting and you learn to invest wisely, you can make a healthy profit from this manner of trading. It is important to stay in control of the trades, and to be careful to monitor your positions as it is a fast moving market with a lot of fluctuation.
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