Let's say you are interested in spread betting on Barclays shares. You look on a spread betting website like Financial Spreads and see the current1 spread betting quote:
Barclays (September): 453.3p - 455.4p
Here’s how it works...
The Market
Barclays (September)
The Spread
453.3p - 455.4p
What this means
You can spread bet on Barclays shares to close:
Higher than 455.4p, or Lower than 453.3p
This is a ‘September’ futures market, ie this market will close when the UK September equities futures contracts are settled, in this case 16-Sep-08.
Units Traded
Spread bets on Barclays shares are made in £x per penny.
Where a penny is 1p of Barclays share price
Eg if Barclays shares moves 20p then you would win or lose 20 times your stake.
Stake per Unit
You choose to how much you want to stake per penny, eg £1 per penny, £2 per penny, £10 per penny etc
Staking example
If your stake is £3 per penny and Barclays shares moves 25p, you would win or lose £3 per penny x 25p = £75.
WORKED EXAMPLE – Buying Barclays shares
Spread betting on Barclays shares to go up
You choose to buy or sell
Barclays to close:
Higher than 455.4p? or Lower than 453.3p?
Let’s say you choose
Higher than 455.4p
You choose your stake, let’s say you opt for:
£5 per penny
What now?
a) You win £5 for every penny Barclays shares finish above 455.4p on the closing date
b) You lose £5 for every penny Barclays shares finish below 455.4p on the closing date
Note
You can close this bet before the expiry date but in this example you let the bet run until the expiry date, 16 Sep 08
When you Buy a spread bet your profit / loss =
(Closing Price – Opening Price) x stake per penny
Scenario 1
Barclays shares closes higher than 455.4p eg 475.4p
Your P&L =
(Closing Price – Opening Price) x stake per penny
(475.4p – 455.4p) x £5 per penny
20p x £5 per penny
Your P&L =
£100 profit
Scenario 2
Barclays shares closes lower than 455.4p eg 433.3p
Your P&L =
(Closing Price – Opening Price) x stake per penny
(433.3p – 455.4p) x £5 per penny
-22.1p x £5 per penny
Your P&L =
-£110.50 loss
WORKED EXAMPLE – Selling Barclays shares
Spread betting on Barclays shares to go down
You choose to buy or sell
Higher than 455.4p? Or Lower than 453.3p?
Let’s say you choose
Lower than 453.3p
You choose your stake, let’s say you opt for:
£3 per penny
What now?
a) You win £3 for every point Barclays shares finish below 453.3p on the closing date b) You lose £3 for every point Barclays shares finish above 453.3p on the closing date
Note
You can close this bet before the expiry date but in this example you let the bet run until the expiry date, 16 Sep 08
When you sell a spread bet your profit / loss =
(Opening Price - Closing Price) x stake per penny
Scenario 1
Barclays shares closes lower than 453.3p eg 430p
Your P&L =
(Opening Price - Closing Price) x stake per penny
(453.3p – 430p) x £4 per penny
23.3p x £3 per penny
Your P&L =
£69.90 profit
Scenario 2
Barclays shares closes higher than 453.3p eg 472p
Your P&L =
(Opening Price - Closing Price) x stake per penny
(453.3p – 472p) x £3 per penny
-18.7p x £3 per penny
Your P&L =
-£56.10 loss
Equities Spread Betting Notes:
1Spread betting prices taken from FinancialSpreads.com on 1 May 2008
You can also spread bet on the UK Shares in $ per penny and Euros per penny
You can also spread bet on:
Daily Barclays markets eg Barclays Rolling Daily
Equities listed in other indices, eg FTSE 250 and AIM companies
Equities listed in other countries, Coca-Cola (US - NYSE), Microsoft (US - Nasdaq) LVMH (France), BMW (Germany), Carlsberg) (Denmark) etc
Financial Spreads – provide free Charts and Live Prices to all account holders
'Equities Spread Betting', Guide by D. Jones, last update: 29 Jun 09
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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.
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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.
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