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Spread Betting Examples Explained
Example: Profit-Making (long)
The current market price for the UK100 is 5998/6000.
You believe that the price of the UK100 will strengthen (rise in value) and you want to go long (buy). You decide to stake £5 per point and you buy the UK100 at 6000.
The margin required to enter into this trade is 30 (the NTR for the UK 100) x £5 = £150.
The price of the UK100 rises to 6020/6023. You were right to buy as the UK100 has risen higher than your opening trade price. You decide to close the trade by selling the UK100 at 6020.
Your profit from the trade is (6020 – 6000) x 5 = £100
Example: Profit-Making (short)
The current market price for the UK100 is 5997/5999.
You believe that the price of the UK100 will weaken (fall in value) and you decide to go short (sell). You decide to stake £5 per point and you sell the UK100 at 5997.
The margin required to enter into this trade is 30 x £5 = £150.
The price of the UK100 falls to 5946/5948. You were right to sell as the UK100 has fallen below your opening trade price. You decide to close the trade by buying back the UK100 at 5948.
Your profit from the trade is (5997 – 5948) x 5 = £245.
Example: Loss-Making
The current market price for the UK100 is 5997/5999.
You believe that the price of the UK100 will weaken, and you decide to go short. You sell UK100 at 5997 with a stake of £5 per point.
The NTR for UK100 is 30 and the margin required for this trade is 30 x £5 = £150.
The price of the UK100 rises to 6016/6018. You were incorrect to sell as the price for UK100 has risen higher than your opening trade price. You decide to close the trade by placing a trade to buy back the UK100 at 6018.
Your loss from the trade is (5997 − 6018) x 5 = −£105.
Example: Margin Call
The current market price for UK100 is 5997/5999.
You have £1,000 cash in your account and you think the UK100 will weaken. You decide to go short.
You sell UK100 at 5997 with a stake of £10 per point.
The NTR for UK100 is 30 and the margin required for this trade is 30 x £10 = £300.
The price of UK100 rises to 6077/6079. Your real time loss is (trade price − current buy price) x stake = (5997 − 6079) x 10 = −£820.00.
The account valuation is £1,000 − £820 = £180. As your account valuation (£180) is less than your margin requirement (£300), a margin call is triggered.
You must top up the difference of £120 (£300 − £180) or reduce your position if you wish to avoid being liquidated.
Example: Financing Charges
The current market price for UK100 is 5997/5999.
You think that UK100 will rise in value and you decide to go long. You buy UK100 at 5999 with a stake of £5 per point.
The NTR for UK100 is 30 and the margin required for this trade is 30 x £5 = £150.
You decide to hold this open trade overnight. At the end of the day, the price of UK100 closes at 6000. Since you are holding a long position open overnight, you will be subject to a financing charge. The financing charge for one day = (Closing Price x Financing Interest Rate)/Days in the calendar year.
If the financing interest for UK100 is 2.25% p.a. (UK100 interest rate of 2% p.a. + 0.25% p.a. haircut), the financing charge payable for your UK100 trade will be (6000 x 2.25%)/365 days = 0.369863.
The financing charge will be added to your opening trade price of 5999. Your adjusted traded price will therefore be 5999 + 0.369863 = 5999.369863.
On the next day, the price of UK100 opens and rises to 6020/21. You were right to buy as the price for UK100 has increased above your opening trade price.
You decided to close the position by selling UK100 at 6020.
Your profit from the trade is (6020 − 5999.369863) x 5 = £103.15. You have paid £1.85 (0.369863 x 5) as financing charges.
Example: Financing Credits
The current market price for UK100 is 5997/5999.
You think the UK100 will weaken and you go short.
You decide to sell UK100 at 5997 with a stake of £5 per point. The NTR for UK100 is 30 and the margin required for this trade is 30 x £5 = £150.
You decide to hold the position open overnight. At the end of the day, the price of UK100 closes at 6000.
Because you are holding a short position open overnight, you will be paid a financing credit. The financing credit for one day = (Closing Price x Financing Interest Rate)/Days in the calendar year.
Assuming that the financing interest for UK100 is 1.75% p.a. (UK100 interest rate of 2% p.a. − 0.25% p.a. haircut), the financing credit for your UK100 trade will be (6000 x 1.75%)/365 days = 0.2876712.
The financing credit will be added to your opening trade price of 5997. Your adjusted traded price will therefore be 5997 + 0.2876712 = 5997.2876712.
On the next day, the price of UK100 opens and rises to 6020/6021. You were incorrect to sell as the price for UK100 has risen higher than your opening trade price.
You decided to close the position by buying UK100 at 6021
Your loss from the trade is (5997.2876712 − 6021) x 5 = −£118.56. You have received financial credits of £1.44 (0.2876712 x 5).
Example: Rollover Interest Credits
The current market price for GBPUSD is 1.4700/02.
You think that the GBPUSD will strengthen and you decide to go long. You buy GBPUSD at 1.4702 with a stake of £5 per point.
The NTR for GBPUSD is 100 and the margin required for this trade is 100 x £5 = £500.
You decide to hold the position open overnight. At the end of the day, the price of GBPUSD closes at 1.4720. Because you are holding a long position on GBPUSD, you will receive a rollover interest credit. The rollover credit for one day = (Closing Price x Interest Rate differential between the currency pair)/Days in the calendar year.
If the interest rate for GBP is 2.5% p.a. and USD is 0.5% p.a (2.5% - 0.5% - 0.25% p.a. haircut), the rollover interest credit for your GBPUSD trade will be (1.4720 x 1.75%)/365 days = 0.000071.
The rollover interest financing credit will be deducted from your opening trade price of 1.4702. Your adjusted traded price will therefore be 1.4702 - 0.000071 = 1.470129.
On the next day, the price of GBPUSD opens and rises to 1.4750/52. You were right to buy as the price for GBPUSD has risen higher than your opening trade price.
You decide to close the position by selling GBPUSD at 1.4750.
Your profit from the trade is (1.4750 – 1.470129) = 48.71 points x £5 = £243.55. You have received rollover interest credits of £3.55 (0.71 points x £5).
Example: Rollover Interest Charges
The current market price for GBPUSD is 1.4700/02.
You think that GBPUSD will weaken and you decide to go short.
You decide to sell GBPUSD at 1.4700 with a stake of £5 per point The NTR for GBPUSD is 100 and the margin required for this trade is 100 x £5 = £500.
You decide to hold the position open overnight. The price of GBPUSD closes at 1.4720. Because you are holding a short position on GBPUSD, you will be subject to a rollover interest charge. The rollover charges for one day = (Closing Price x Interest Rate differential between the currency pair)/Days in the calendar year.
Assuming that the interest rate for GBP is 2.5% p.a. and USD is 0.5% p.a (2.5% - 0.5% + 0.25% p.a. haircut), the rollover interest charges for your GBPUSD trade will be (1.4720 x 2.25%)/365 days = 0.000091.
The rollover interest charges will be deducted from your opening trade price of 1.4700. Your adjusted traded price will therefore be 1.4700 - 0.000091 = 1.469909.
On the next day, the price of GBPUSD opens and rises to 1.4750/52. You were incorrect to sell as the price for GBPUSD has risen higher than your opening trade price.
You decide to close the position by buying GBPUSD at 1.4752.
Your loss from the trade is (1.469909 – 1.4752) = 52.91 points x £5 = £264.55. You have paid £4.55 (0.91 points x 5) as rollover interest charges.
Example: Dividend Credits
The current market price for Vodafone shares is 200/201.
You think that Vodafone will strengthen and you decide to go long. You buy Vodafone at 201 with a stake of £5 per point.
You decide to hold the open trade overnight. Vodafone declares a 15p dividend. As it is the close of business the day prior to the ex-dividend event, you are entitled to receive the dividend. Your trade price will be adjusted to reflect the receipt of the dividend.
You will be paid 90% of the dividend payment, therefore in this instance you will be paid 13.5p (15p x 90%). Your trade price will be adjusted to 201 – 13.5 = 187.5.
On the next day, the price of Vodafone opens and rises to 210/211. You were right to buy Vodafone as the price has risen higher than your opening trade price.
You decide to close the position by selling Vodafone at 210.
Your profit from the trade is (210 – 187.5) x 5 = £112.50. You have received £67.5 (13.5 x 5) as dividend.
Example: Dividend Charges
The current market price for Vodafone shares is 200/201.
You think that Vodafone will weaken and you decide to go short. You sell Vodafone at 200 with a stake of £5 per point.
You decide to hold the position open overnight. Vodafone declares a 15p dividend. As it is the close of business the day prior to the ex-dividend event, you are required to make a dividend payment. Your trade price will be adjusted to reflect the dividend payment.
The dividend that you pay is therefore 15p. Your trade price will be adjusted to 200 – 15 = 185.
On the next day, the price of Vodafone opens and rises to 210/211. You were incorrect to buy Vodafone as the price has risen higher than your opening trade price.
You decide to close the trade by buying Vodafone at 211.
Your loss from the trade is (185 – 211) x £5 = -£130. You have paid £75 (15 x 5) as dividend.
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