Financial Spread betting is best explained by using an example. Financial spread betting appears at first to be a complicated business at first but with a little bit of practice it soon becomes easy to have enough knowledge to play the market and make profits.
Here is a short example of financial spread betting:-
1. Happy Corp is trading at 1.79/1.80 and you think the price is going to rise in value.
2. You decide to place a ‘buy’ bet so you buy Happy Corp at 1.80.
3. Being new to Spread Betting, you decide to trade the minimum amount of £1 per point.
4. You place a buy bet on with you bookmaker for £1 per point on ABC Corp shares at 1.80.
5. You now have the equivalent of 100 Shares with a value of £180.
6. Your margin requirement with most bookmakers for Happy Corp is 5% therefore £ will be allocated from your account against this trade as initial margin. Remember if the share price moves against you, it is possible to lose more than this £9 initial margin.
7. Four days later you see that Happy Corp has risen to 2.05/2.06.
8. Therefore you choose to sell at 2.05 and realise your profit.
9. You bought at 1.80 and sold at 2.05 which means Happy Corp rose by 25 points per share 25 x £1 = £25.
10. You held the position for four days which means you incurred four nights financing charge. This is how you calculate the financing charge;
11. £180 (value of the position) x LIBOR + 2.5% (which in this instance = 8%) /365 (number of days in the year) x 4 (number of days position is held) = £0.18.
12. The financing is deducted from the total revenue, realising a profit of £24.82.
This example shows that financial spread betting can be easily explained. The best way to get into spread betting is to read about it first and then practice with a play account before going “live” with real money.
It can be over time real rewarding and profitable business. Please note though you can also lose money so make sure you agree your stop losses first before any trade.
The financial spread betting review website offers an simple guide to financial spread betting The website is owned by Jamie Forston-Merrel a who explains financial spread betting for beginners . Jamie lives and work in London.