Daily FTSE
Looking at an example is a great way of developing a better understanding of how spread betting works.
All our bets essentially work in the same way; we quote a price for a market expiring at some time in the future and you make a bet based on whether you think the market will be higher or lower than our quote by that time.
The diagram below walks you through a bet on one our most popular markets, the Daily FTSE, where you bet against the daily settlement price of the FTSE 100.
You decide you want to bet on the short-term direction of the FTSE 100.
Our Daily FTSE price on 9 November 2009 is quoted at 5193 – 5195.
This means you can ‘sell’ at 5193 or ‘buy’ at 5195 (‘buy’ transactions are made at the higher end of the spread and ‘sell’ at the lower end).
We quote 5193 – 5195
Sell
You think the market is going to fall, so you choose to ‘sell’. You decide to risk £10 per point.
You ‘sell’ £10 per point at 5193
Against your expectations, the market rises in the afternoon. You opt to cut your losses and close your bet at our current price in case the market moves further against you.
At 1pm the price we quote is
5211 – 5213
To close a ‘sell’ bet you simply ‘buy’ at the top end of the spread
You ‘buy’ £10 per point at 5213
Your loss is calculated as follows:
| Opening price | 5193 |
| Closing price | 5213 |
| Difference | 20 |
Loss: 20 x £10 = £200
Buy
You think the market is going to rise, so you choose to ‘buy’. You decide to risk £10 per point.
You ‘buy’ £10 per point at 5195
As you predicted, the market rises in the afternoon and you choose to let your bet run to expiry
The FTSE 100 keeps rising and at the end of the day you choose to close your bet at the settlement price of 5234
Your profit is calculated as follows:
| Opening price | 5195 |
| Closing price | 5234 |
| Difference | 39 |
Win: 39 x £10 = £390
Buying the euro
A Controlled Risk bet, using a Guaranteed Stop, is the ideal way to put an absolute cap on your risk.
The example below shows you how this device can help you guard against losses.
It is December and you believe that Wall Street is set to fall over the next few months. You check our live price for March Wall Street and we are quoting 10396 – 10404.
You make the decision to ‘sell’ £15 per point, but want to limit your risk. The opening price for a Controlled Risk ‘sell’ is our bid price minus our Controlled Risk premium of 4:
10396 – 4 = 10392
You do not want to lose any more than £900 on this bet, so at £15 per point you can only afford the market to move 60 points against you – in this case up to 10452 from your ‘sell’ price of 10392.
You decide to put your Guaranteed Stop at 10450, risking a move of 58 points or £870 (58 x £15) against you. This ensures your bet will be automatically closed if the market rises to this level.
A few days after opening the bet, Wall Street does fall. Do you want to take your profit?
Yes
You check our current March Wall Street price. We quote 10192 – 10200
To close this 'sell' bet you 'buy' £15 per point at the offer price of 10200
Your profit is calculated as follows:
| Opening price | 10392 |
| Closing price | 10200 |
| Difference | 192 |
Win: 192 x £15 = £2880
No
You decide to leave your bet open, but your decision seems to be the wrong one as Wall Street makes rapid gains and trades up strongly to 10550.
With no risk control in place, you would be running a significant loss. However, your Guaranteed Stop kicked in and your position was automatically closed when Wall Street reached 10450.
Your loss is calculated as follows::
| Opening price | 10392 |
| Closing price | 10450 |
| Difference | 58 |
Lose 58 x £15 = £870