Having looked at the fundamentals of spread betting, let’s see how they translate into real examples.
Let’s say you’ve spent some time researching your chosen market and believe that, in light of recent economic news, the UK 100 is likely to fall soon. For the purpose of this example, the UK 100 is currently being offered at a spread price of, say, 7350/7351. Based on your reading of the economic news, you decide to go ahead and go short at 7350 for a stake of £5 per point.
As a result of your stake value in this example, you’d stand to profit £5 per every point the UK 100 drops below 7350.
The Market Falls
You anticipated the fall correctly, and the UK 100 drops to 7340, so you now need to close your trade by backing your spread bet at the price of the new spread. The new spread price is offered at 7339/7340. You now buy back your spread at a buy price of 7340, netting a profit of £50 (7350 – 7340 x £5 per point).
The Market Rises
If the market rises contrary to your predictions, the same rules apply but this time against your favour. So in this example, you would stand to lose £5 per every point movement above your initial sell price of 7350. To stop your losses from increasing, you need to close your bet. You should now consider buying back your spread bet at the current buy price of 7360, translating into a £50 loss (7360 – 7350 x £5 per point). One trick to minimising the risk of large loss at this stage, is to minimise the time it takes to close your bet; the more time that passes in a rising market in this example, the more money you may continue to lose. Speed and quick-thinking is paramount in limiting the damage of an incorrect prediction.
Even for experienced spread betters, an untimely bet and slow reaction time can prove costly, so it’s worth reading up on the various risks involved in spread betting. Equally, if you’re happy with your understanding of spread betting so far and fancy putting your learning into practice, feel free to check out our Spread betting broker comparison page to see first-hand what the brokers offer.
