Financial Spread Betting Margin/Trading Examples
| Example 1: Equity Spread Bets |
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The GFT quote for XYZ - Rolling is 449.3 - 455.7
XYZ is announcing its 2nd quarter results tomorrow. In the belief the results will be better than expected, you BUY for a stake of £25. This means that for every penny the bid price of the share rises above 455.7, you win £25, and for every penny the bid price of the share drops you lose £25. (This is equivalent to buying 2,500 shares in the underlying market itself.)
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NIGHTLY FINANCE ADJUSTMENT
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As you hold the position overnight, your bet is "rolled", i.e. closed and re-opened at the closing price for that day (as determined by GFT), thus realising a profit or loss, and a finance adjustment is made to your account shortly after the stock market closes.
This adjustment is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
your stake (£25) |
p = |
closing price as determined by GFT Global Markets (456p) |
r = |
relevant LIBOR rate, PLUS 300 basis points for long positions, or MINUS 300 basis points for short positions (4.50% + 3.00%) = 7.50% |
d = |
number of days, i.e. 365 for UK shares and 360 for all others |
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Long (buy) trade positions are debited the daily financing charge
Short (sell) positions are credited the daily financing charge
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So, the finance adjustment will be a debit to your account, equal to:
(£25 x 4.56 x 7.5%) = £8.55
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The "roll" is done at a price of 456p, so your bet is closed at 456p - realising a profit of £7.50 - and re-opened at 456p.
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At 7am the next morning, XYZ results are indeed above forecast. By 08:30 the share is trading at 476 - 477.
The GFT quote XYZ - Rolling is 475.3 - 477.7.
You decide to take your profit and SELL £25 at 475.3, thus closing your bet. You have realised a trading profit of (475.3 - 456) x your stake of £25 = £482.50. (After taking into account the financing charge, and the realised profit from the roll, you have made a net profit of (482.50 - 8.55+ 7.50) = £481.45
Trade Summary:
BUY £25 Equity
Spread Bets
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In price
Out price
Finance adjustment
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455.7
475.3
8.55
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TOTAL PROFIT
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£481.45
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| Example 2: Stock Market Spread Bets |
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The UK 100 index is trading around 6050. After a strong rally of 200 points over the last month you believe the market may be due a fall
The GFT current quote for UK 100 - Rolling is 6051 - 6053.
You SELL £10 a point at 6051. For every point that our quote on the UK 100 index falls, you will win £10, but for every point it rises you will lose £10.
You keep the bet open for another 2 days whilst watching the market. Your bet will therefore be "rolled", i.e. closed and re-opened, and a finance adjustment made, after the market has closed on those days.
So your open bet at 6051 will be automatically closed and re-opened at the market closing price of 6055.0 on the first day, realising a loss of £40, and then on the second day it's closed at 6075.4, realising a loss of £204.
So, two days later you see that our quote on the UK 100 has actually risen to 6080 - 6082. Deciding to cut your losses you close your bet and BUY £10 at 6082.
Your total trading loss on this market over the three days is £(40 + 204 + 66) = £310.
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DAILY FINANCE ADJUSTMENT
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You will have incurred 2 days' financing charges for this rolling bet.
This adjustment is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
your stake (£10) |
p = |
closing price as determined by GFT Global Markets (e.g. 6055.0 and 6075.4) |
r = |
relevant LIBOR rate, PLUS 300 basis points for long positions, or MINUS 300 basis points for short positions (4.50% - 3.00%) = 1.50% |
d = |
number of days, i.e. 365 for UK shares and 360 for all others |
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Long (buy) trade positions are credited the daily financing charge
Short (sell) positions are debited the daily financing charge
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So, the finance adjustment will be a debit to your account, equal to:
Day One: (£10 x 6055.0 x 1.5%) / 365 = £2.49
Day Two: (£10 x 6075.4 x 1.5%) / 365 = £2.50
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I.e. Total financing adjustment = £4.99
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Trade Summary:
SELL £10 Stock Market
Spread Bets
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In price
Out price
Finance adjustment
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6051
6082
4.99
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TOTAL LOSS
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£305.01
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| Example 3: Metal Spread Bets |
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It is June and the price of gold has been soaring recently as speculators push the price higher and higher. You decide the rally still has further to go and check the GFT trading platform for our quote on Gold
The GFT quote for Gold - Sep is 680.0 - 680.7
GFT's Gold quote is based on the underlying futures contract
You BUY £20 at 680.7, and here you should note (from our Product Information Sheets) that you are betting "per 0.1", i.e. if Gold moves from 680.0 to 681.0, that is 10 "ticks", or equivalent to a £200 move on a £20 bet.
This bet, if left, would expire (i.e. close automatically) on August 18th. However, by the beginning of July the price has already risen through the £700 level, and our quote is 702.5 - 703.2.
You decide to close part of your position and SELL £10 at 702.5.
This realises a profit of (7025 - 6807) x your stake of £10 = £2180.
You leave the remaining £10 bet to run until expiry of the market in August. Unfortunately by then the profit-takers have stepped in and the market expires at 675.5.
On this £10 bet you have realised a loss of (6807 - 6755) x 10 = £520.
Overall, the £20 bet results in a profit of £(2180 - 520) = £1660.
Trade Summary:
BUY £20 Metals
Spread Bets
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In price
1st out price
Profit taken
2nd Out price
Loss incurred
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680.7
702.5
£2180
675.5
£520
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TOTAL PROFIT
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£1660
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| Example 4: FX Spread Bets |
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On the eve of a Bank of England rates meeting, the sterling/US dollar spot rate (GBP/USD) is trading around 1.8553
GFT's quote for GBP/USD - Rolling Spot at the time is 1.8552 - 1.8555.
You believe the Bank may well make a surprise hike in UK rates and BUY £5 at 1.8555. (With currencies you are always buying the first-named currency.)
Bets held overnight on rolling markets are "rolled", ie closed and reopened at that day's closing price (as determined by GFT), and are subject to a finance adjustment.
In this example, your bet is closed (and re-opened)at 1.8560, thus realising a trading profit for that day of (18555 - 18560) x £5 = £25.
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NIGHTLY FINANCING CHARGE
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For bets on currencies, the finance adjustment is calculated as follows: f = (s x p x r) / d where:
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f = |
daily financing charge |
s = |
your stake (£5) |
p = |
roll-over price (the price at 22:00 UK time that day, say 1.8560) |
r = |
relevant overnight LIBOR rate of 1st named currency minus that of 2nd named currency (4.50% - 5.00%) = minus 0.5% |
d = |
number of days, i.e. 365 for GBP and 360 for all others |
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and so here the adjustment is equal to:
(5 x 18560 x -0.5%) / 360 = -$1.29 (converted to -£0.70 as your account is a sterling-denominated account).
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So in this instance your bet would have been debited £0.70 while you held the position overnight.
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At 10:45 the next morning the Bank's decision is announced.rates are maintained at their current level and sterling drops. Deciding to close your bet you see that the current quote is 1.8490 - 1.8493 and SELL £5 at 1.8490, realising a loss of (18490 - 18560) x £5 = £350.
So your total loss on this trade was £(25 -350 - 0.70) = £325.70.
Trade Summary:
BUY £5 FX
Spread Bets
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In price
Out price
Finance adjustment
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1.8555
1.8490
0.70
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TOTAL LOSS
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£325.70
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Financial Spread Bets are a leveraged product and therefore may not be suitable for all investors. Financial Spread Bets carry a high degree of risk to your capital and it is possible to lose more than your initial investment or credit allocation as well as any variation margin that you may be required to deposit from time to time. You should only speculate with money that you can afford to lose. Please ensure that you fully understand the risks involved and seek independent advice if necessary and prior to entering into such transactions.
Click here to read the full risk warning.
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HISTORY OF FINANCIAL SPREAD BETTING
MARGIN/TRADING EXAMPLE