Let’s say you are interested in spread betting on Brent Crude Oil, you look on a spread betting website eg Financial Spreads and see the current* spread quote:
Brent Crude Oil (June): $110.76 - $110.81
Here’s how it works...
The Market
Brent Crude Oil (June)
The Spread
$110.76 - $110.81
What this means
You can bet on Brent Crude Oil (June) to close:
Higher than $110.81, or Lower than $110.76
This is a ‘June’ futures market. ie this market will close when the June futures contracts are settled, in this case 15-May-08.
Units Traded
You trade the Brent Crude Oil market in £x per cent.
A Cent is one ¢ ($0.01) of the price of Brent Crude Oil.
Eg if Brent Crude Oil moves 125¢ ($1.25) then you would win or lose 125 times your stake.
Stake per Unit
You choose to how much you want to stake per ¢, eg £1 per ¢, £2 per ¢, £10 per ¢ etc
Staking example
If your stake is £4 per ¢ and Brent Crude Oil moves 50¢, you would win or lose £4 per ¢ x 50¢ = £200.
WORKED EXAMPLE – Buying Crude Oil
Spread betting on the price of Brent Crude Oil to go up
You choose to buy or sell
Higher than $110.81? or Lower than $110.76?
Let’s say you choose
Higher than $110.81
You choose your stake, let’s say you opt for:
£2 per ¢
What now?
a) You win £2 for every ¢, Brent Crude Oil finishes above $110.81 on the expiry date
b) You lose £2 for every ¢, Brent Crude Oil finishes below $110.81 on the expiry date
Note
You can close this bet before the expiry date but in this example you let the bet run until the expiry date, 15-May-08.
When you buy a spread bet your profit =
(Closing Price – Opening Price) x stake per ¢
Scenario 1
Brent Crude Oil closes higher than $110.81 eg $111.50
Your P&L =
(Closing Price – Opening Price) x stake per ¢
($111.50 – $110.81) x £2 per ¢
($0.69) x £2 per ¢
69¢ x £2 per ¢
Your P&L =
£138 profit
Scenario 2
Brent Crude Oil closes lower than $110.81 eg $110.22
Your P&L =
(Closing Price – Opening Price) x stake per ¢
($110.22 – $110.81) x £2 per ¢
(-$0.59) x £2 per ¢
-59¢ x £2 per ¢
Your P&L =
-£118 loss
WORKED EXAMPLE – Selling Crude Oil
Spread betting on the price of Brent Crude Oil to go down
You choose to buy or sell
Higher than $110.81? or Lower than $110.76?
Let’s say you choose
Lower than $110.76
You choose your stake, let’s say you opt for:
£3 per ¢
What now?
a) You win £3 for every ¢ Brent Crude Oil finishes lower $110.76 on the expiry date
b) You lose £3 for every ¢ Brent Crude Oil finishes higher $110.76 on the expiry date
Note
You can close this bet before the expiry date but in this example you let the bet run until the expiry date, 15-May-08.
When you sell a spread bet your profit =
(Opening Price - Closing Price) x stake per ¢
Scenario 1
Brent Crude Oil closes lower than $110.76 eg $110.32
Your P&L =
(Opening Price - Closing Price) x stake per ¢
($110.76 - $110.32) x £3 per ¢
($0.44) x £3 per ¢
44¢ x £3 per ¢
Your P&L =
£132 profit
Scenario 2
Brent Crude Oil closes higher than $110.76 eg $111.17
Your P&L =
(Opening Price - Closing Price) x stake per ¢
($110.76 – $111.17) x £3 per ¢
(-$0.41) x £3 per ¢
-41¢ x £3 per ¢
Your P&L =
-£123 loss
Crude Oil Notes:
Spread betting prices taken from FinancialSpreads.com on 1 May 2008
You can also spread bet on Brent Crude Oil in Dollars per ¢ and Euro per ¢
You can also spread bet on:
Nymex Crude Oil (also known as West Texas Intermediate or WTI)
Daily Crude Oil markets eg Rolling Daily Brent Crude Oil and Rolling Daily Nymex
Daily Indices markets eg FTSE 100 Rolling Daily and FTSE 250 Rolling Daily
Some companies to not offer Crude Oil Daily markets, only Futures Crude Oil Markets. However with Crude Oil, the Spread on Futures is often similar or better value than to the spread on the Daily market quoted by other firms
'Crude Oil Spread Betting', Guide by D. Jones, last update: 29 Jun 09
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Trade the tightest FTSE spreads available² & find a range of benefits at:
FinancialSpreads.com
£1 per point: Start trading £1 per point/tick & an initial deposit of £30
Multiple markets: Forex , Commodities, Indices & Equities
Risk Warning - Spread betting carries a high level of risk to your capital & you may lose more than your initial investment. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seek financial advice where necessary & make sure spread betting meets your investment objectives.
(1) The FTSE Rolling Daily Spread is 1 tick during market hours & 4 ticks out of hours. 1 Tick is defined as a full FTSE point. See our Product Information for more details. (2) The above information is correct at time of writing. (3) Tax Law can change.
FinancialSpreads.com is a trading name of London Capital Group Ltd which is authorised & regulated by the Financial Services Authority (FSA). Registered address: is 4th Floor, 12 Appold Street, London EC2A 2AW. All information correct at time of publication.
Risk Warning:
Spread Betting carries a high level of risk
to your capital and you can lose more than your initial investment,
it may not be suitable for all investors. Ensure you only
speculate with money that you can afford to lose and that you fully
understand the risks involved and seek independent financial advice where necessary.
Disclaimer:
Online-Spread-Betting.com does not endorse the information and
analysis available on this site. It is provided purely for information
purposes and is delivered as a personal view of the writer. Under no circumstances
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solicitation of any offer to buy. The website content does not constitute investment
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* Tax Free Trading:
Tax law is subject to change. It may also differ if you pay tax in a jurisdiction outside the UK.
