All trading involves risk. Losses can exceed deposits.

Spread betting examples

See how a spread bet works, with in-depth examples on buying the FTSE 100 and selling EUR/USD.

All trading involves risk. Losses can exceed deposits.

Spread betting on a financial market involves placing a bet on whether its price is going to go up or down. The further it moves in your chosen direction, the greater your profit. But if it moves in the opposite direction, you’ll make a loss.

Here’s a look at how that works in practice with two step-by-step examples.

Buying the FTSE 100

The FTSE 100’s underlying market value is 7114, with a one-point spread applied by IG. That means you can sell it at 7113.5, or buy at 7114.5.

You anticipate that the Bank of England (BoE) will be lowering interest rates soon, and that the FTSE 100 is set to rise. You buy £10 per point at 7114.5.

Spread betting is a leveraged product, meaning you only need to cover the margin as opposed to the full value of the trade. Margin is calculated by multiplying the margin factor for the market you are trading with your total exposure.

Say that the FTSE 100 has a margin factor of 0.5%. Your margin would be 0.5% of the total size of your trade. You’re trading the FTSE 100 at £10 per point, so your total trade size is £10 x 7114.5 = £71,145. That’s assuming that you haven’t attached a guaranteed stop, which could change your margin requirement.

0.5% of £71,145 is £355.73, so that’s how much you need to deposit as margin.

If your prediction is correct

The BoE drops interest rates, and as soon as the news is announced, the FTSE 100 climbs. You decide to close your position when it reaches 7150, with a buy price of 7150.5 and a sell price of 7149.5.

To close a spread bet position, you reverse your trade – so you sell your £10 stake at a price of 7149.5.

7149.5 – 7114.5 = 35, meaning that the market has moved 35 points in your favour. To calculate your profit, you multiply this figure by the amount you’ve bet per point, giving you a profit of £350.

With spread betting, you won’t have to pay any tax on your profits, or commission to open the position. You will have to pay funding charges if you keep your position open overnight, however.

If your prediction is wrong

The BoE doesn’t raise rates like you anticipated, and instead of rallying the FTSE 100 drops. You decide to cut your losses and sell your £10 stake when it hits 7078, with a buy price of 7078.5 and a sell of 7077.5.

You’re closing your trade, so you sell at 7077.5. 7077.5 – 7114.5 = -37 points, meaning the FTSE 100 has moved 37 points against you.

This gives you a loss of £370, plus any overnight fund charges if the position was open for more than one day.

Buying FTSE 100: example trade

Underlying price

7114

Sell / buy price

7113.5 / 7114.5

Deal

Buy at 7114.5

Deal size

£10 per point

Initial outlay

£355.73

Stamp duty

None

Capital gains tax

None

Commission

None

Other potential charges

A funding charge if you keep your position open overnight.

Market movement

Rises 36 points to 7150

Falls 36 points to 7078

Closing price

Sell at 7149.5

Sell at 7077.5

Calculation

 

7114.5 – 7149.5 = 35

£10 per point x 35 = £350

7114.5 – 7077.5 = -37

£10 per point x -35 = -£370

Profit / loss

£350 profit

£370 loss

 

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Selling EUR/USD

EUR/USD is trading at 1.19129. Spread betting markets are listed in points, so our price is 11912.9, with a sell price of 11912.6 and a buy price of 11913.2.

You think that the US president is about to announce policy which could boost the dollar against the euro, so you decide to sell £15 per point at 11912.6. EUR/USD has a margin factor of 0.5%, so you need to deposit ((£15 per point x 11912.6) x 0.5%) £893.45 as margin. Once again, assuming you haven't attached a guaranteed stop.

If your prediction is correct

The new policies cause EUR/USD to fall to 11890.1, with a buy price of 11890.4 and a sell price of 11889.8. You’re ready to secure your profit, so you buy £15 per point at 11890.4.

11912.6 – 11890.4 = 22.2, which you multiply by £15 per point to get £333. Remember, if you’d kept this position open overnight then your total profit would be lower because of funding charges.

If your prediction is wrong

The president does a last-minute U-turn on his policies, giving EUR/USD a boost. You decide to cut your losses when the market hits 11935.7, with a buy price of 11936.0.

11912.6 – 11936.0 = -23.4, so the price has moved 23.4. points against you. This means you sustain a loss of £351, plus any funding charges.

Selling EUR/USD: example trade

Underlying price

11912.9

Sell / buy price

11912.6 / 11913.2

Deal

Sell at 11912.6

Deal size

£15 per point

Initial outlay

£893.45

Stamp duty

None

Capital gains tax

None

Commission

None

Other potential charges

A funding charge if you keep your position open overnight.

Market movement

Falls 22.8 points to 11890.1

Rises 22.8 points to 11935.7

Close price

Buy at 11890.4

Buy at 11936.0

Calculation

11912.6 – 11890.4 = 22.2

£15 per point x 22.2 = £333

11912.6 – 11936.0 = -23.4

£15 per point x -23.4 = -£351

Profit / loss

£333 profit

£351 loss

 

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