Interest rates examples
'Buying' Short Sterling
Opening the position
The market price for September 2011 Short Sterling is 98.60/98.61, implying the market's expectation that, in September, 3-month interest rates will be around 1.4% (100 - 98.6). Our quotation, which does not contain the decimal point, is 9859-9862.
As the market price reflects an expected increase in interest rates, but you believe they will be unchanged, you 'buy' £10 per point at 9862. The margin is the bet size (£10) multiplied by the margin factor, in this case 32. So your margin is £320.
Closing the position
You are proved right as UK interest rates hold steady at 0.50% and look set to stay that way in the medium term. Our price for September 2011 Short Sterling has risen as a result, and towards the end of June our quotation stands at 9907-9910. You decide to take your profit and close your bet by 'selling' £10 per point at 9907.
|Profit on deal|
|Profit on deal: 45 x £10 per point = £450|
'Selling' the German Bund
Opening the Position
You believe that with the European outlook improving, the price of Bunds
On 18 July 2011 our price for the September German Bund stands at 12920-12923 and you decide to 'sell' £5 per point at 12920.
Closing the Position
Over the next few days our September Bund price fluctuates as confidence over economic recovery in the EU changes. Then on 21 July 2011, an emergency EU summit meeting is reported as reaching positive conclusions on the debt crisis, and the price of Bunds drops to 12735-12738.
You decide to close the position and take your profit, 'buying' at 12738.
|Profit on deal|
|Profit: 182 x £5 per point = £910|
Spread bets are leveraged products. Spread betting may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.