Example: Interest Rates

You believe that short-term UK interest rates will rise so that the price of 3-month Sterling Deposits (usually called Short Sterling) will fall.

You decide to 'sell' March Sterling Deposits. The market price is 95.24/95.25, implying an expectation that, in March, 3-month interest rates will be 4.755% (100 minus 95.245). Our quotation, which does not contain the decimal point, is 9523 -9526.

You 'sell' £50 per point at 9523. The deposit is the bet size (£50) multiplied by the deposit factor, in this case 20. So your deposit is £1000.

You are proved wrong as UK interest rates fall in the coming months. The price goes up and our quotation rises to 9559 - 9562. You decide to take your loss and close your bet at 9562.

The result

Loss: 39 x £50 per point = £1950