Practical spread betting examples
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Financial spread betting is best explained with the aid of numerical examples. In this section, we look at two examples to illustrate trades in alternative directions.
Long (Buy bet) on FTSE100: you believe that the FTSE 100 is looking cheap and you want to profit from the opportunity. In this case, you decide to buy.
The index is currently quoted at 6050-6054 and you buy at £10 a point. (This means that you make or lose £10 for every point that the FTSE 100 moves). The £10 is referred to as your bet size.
Some time passes and your view on the outlook for the FTSE 100 turns out to be right. The index has now risen. You decide to close your spread bet position by placing the opposite bet to your opening bet. You either call your broker for a quote or go online to check the current quote on your broker's trading platform.
The FTSE 100 is now quoted 6112-6116. You close your position by selling £10 a point at 6112.
Your profit for the trade = (6112 - 6054) x 10 = 58 x 10 = £580
Notice that although the FTSE 100 is currently trading at 6114, you are only able to trade at 6112. The four-point difference between the quoted prices 6112-6116 is the spread. This is the direct cost of spread trading that traders bear and it is where the betting companies make their money.
Short on Dow Jones Industrial Average: you believe that the Dow is currently at a short-term top and is going to fall, so you decide to sell short.
The index is quoted at 11050-11056 and you open a trading position by selling at £5 a point. (remember that this means that you make or lose £5 for every point that the Dow moves).
A couple of days later, the Dow has gained 40 points from where you sold short and this causes you to review your position. You decide to close the bet.
You either call your broker for a quote or go online to check the current quote on your broker's trading platform. The Dow is now quoted 11090-11096. You place a buy bet to close your short position at £5 a point.
Your loss for the trade = (11096 - 11050) x 5 = 46 x 5 = £230
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