Long Example 1 (Spread Trading on a Stock)
The spread betting company’s quote for September Anglo American is BID: 1266 – OFFER: 1274.
If you think it is going up, you should BUY at 1274. If you think it is going down, you should SELL at 1266.
Your Trade
You like Anglo American, so you buy it at 1274 for GBP5 per point (the same “profit profile” as buying 500 shares in Anglo American). In order to equate your spread trade to the equivalent share exposure, you multiply the amount of risk traded per point by 100.
The Result
Anglo American rallies strongly and two weeks later the spread betting company’s price for Anglo American is 1385 – 1393. You decide to take your profit and you SELL GBP 5 per point at 1385, closing your trade and making GBP 555 profit (BUY at 1274, SELL at 1385, making 111 points profit at GBP 5 per point).*
Short Example 2 (Spread Trading on a Currency)
The spread betting company’s quote for the September Euro against the US Dollar is BID 1,2905 – OFFER 1,2910.
If you think the Euro is going to strengthen against the Dollar, you should BUY at 1,2910. If you think the Euro is going to weaken against the Dollar, you should SELL at 1,2905
Your Trade
You think the Euro looks over bought against the US Dollar and that it will weaken, so you SELL at 1,2905 for GBP 5 per point.
The Result
The Euro does weaken against the US Dollar and one month later, the price for Euro-US Dollar is 1,2845 – 1,2850. You decide to close your trade and lock in your profit, so you BUY at 1,2850, making GBP 275 profit (SELL at 1,2905, BUY at 1,2850, making 55 points profit at GBP 5 per point).*
Example 3 (Spread Trading on an Index)
The spread betting company’s quote for the September WALL STREET 30 is BID: 10,450 – OFFER: 10,458.
If you think it is going up, you should BUY at 10,458, if you think it is going down, you should SELL at 10,450.
Your Trade
You like the WALL STREET 30 and think it will rise, so you BUY at 10,458 for GBP10 per point.
The Result
The WALL STREET 30 rallies and one day later the price for the WALL STREET 30 is 10,525 – 10,533. You decide to close your trade and take your profit, so you SELL at 10,525, making GBP 670 profit; BUY at 10,458, SELL at 10,525, making 67 points at GBP 10 per point.*
*Please be aware that any adverse movement would have led to a loss.