Long Example

Example trade – going long

1. ABC Corp is trading at 159.75 / 161.25. You think that the new product they have just released will sell well and the share price will rise so you decide to buy
2. You place a buy bet (also known as going long) at 161.25 NB Share prices are quoted in pairs – the bid and the offer. The bid or ‘sell price’ is quoted first and the offer or ‘buy’ price is quoted second
3. Since you are new to Spread Betting you trade the minimum amount of £1 per point, which is the equivalent of 100 shares in the real market
4. ABC Corp is margined at 5% - this means that you only require 5% of the total position’s value and this will be allocated from your account as initial margin. In this example it will be £8.06 (5% x (£1 x 161.25)). Remember, if the share price moves against you it is possible to lose more than your initial £8.06 margin

Outcome A: Winning trade

1. Your prediction is correct and 2 days later the share price rises by 20 points to 179.75 / 181.25. You decide to close your trade and sell at 179.75
2. You have made 18.5 points (179.75 - 161.25) x £1 = £18.50 revenue. You held the position for 2 days which means you have incurred 2 nights financing charge.
3. The financing charge for the first night is £0.04. This is calculated by taking £161.25 (value of your exposure to the market at the end of each day) x LIBOR +3% (which in this instance +8%) / 365 (number of days in the year = £0.04. The second night the share price is slightly higher and the financing charge is £0.05
4. Therefore you deduct both night’s financing charges from the total revenue and realise a total profit of (£18.50 - £0.09) = £18.41

Outcome B: Losing trade

1. Your prediction is incorrect as the share price falls by 20 points to 139.75 / 141.25. You decide to close your trade and sell at 139.75
2. You have lost 21.5 points (161.25 - 139.75) x £1 = minus £21.50 revenue
3. You held the position for 2 days which means you have incurred 2 nights financing charge
4. The financing charge for the first night is £0.04. This is calculated by taking £161.25 (value of your exposure to the market at the end of each day) x LIBOR +3% (which in this instance +8%) / 365 (number of days in the year = £0.04. The second night the share price is slightly lower and the financing charge is £0.02
5. Therefore you add both night’s financing charges from the total revenue and realise a total loss of £21.56 (£21.50 + £0.06)

This example uses a stake of £1 per point but you can trade in any multiples of £1, for example £3 or £10. If you had traded with a stake of £5 in this example you would have made a profit of £92.41 or a loss of £102.50. Trading with larger sizes increases your risk so make sure you understand the risks involved.

Short Example

Example Trade - Going Short

1. Qwerty Corp is trading at 222.00 / 224.50. You think that Qwerty Corp is over-valued and the share price may fall so you decide to bet on it going down.
2. You place a down bet (also known as going short) of £1 per point at 222.00 NB Share prices are quoted in pairs – the bid and the offer. The bid or ‘sell price’ is quoted first and the offer or ‘buy price’ is quoted second.
3. Since you are new to Spread Betting you trade the minimum amount of £1 per point, which is the equivalent of 100 shares in the real market.
4. Qwerty Corp is margined at 3% - this means that you only require 3% of the total position’s value to open a trade and this will be allocated from your account as initial margin. In this example, the total margin will be ((222x£1) x 3%) = £6.66. Remember, if the share price moves against you it is possible to lose more than your initial £6.66 margin requirement.

Outcome A: winning trade

1. Your prediction is correct as the next day Qwerty Corp issue a profits warning and the share price falls by 50 points to 172.00 / 174.50. You decide to close your trade and buy back at 174.50.
2. You have made 47.5 points (222.00 - 174.50) x £1 = £47.50 revenue.
3. As you held the position overnight, you are owed a financing charge. CMC Markets will pay LIBOR - 3% on all short positions (nothing if less than 0). In this case, if the closing price that evening was 190 you would receive £0.01 (190 x £1 x LIBOR (assume 5%) - 3% / 365).
4. Therefore you add the financing charges to the total revenue and realise a profit of £47.51

Outcome B: losing trade

1. Your prediction is incorrect as a rumour of a takeover bid means the share price increases by 18 points to 240.00 / 242.50.
2. You decide to close your position at a loss by buying back at 242.50. There is a difference of 20.5 points (222.00 - 242.50) x £1 which is a loss of £22.50 to you.
3. As you held the position overnight you incur a financing charge. The financing charge is £0.06. This is calculated by taking £222 (value of your exposure to the market) x LIBOR + 3% (in this case + 8%) / 365 (number of days in the year) = £0.06.
4. Therefore you add financing charges to the total revenue and realise a loss of £22.56.

This example uses a stake of £1 per point but you can trade in any multiples of £1, for example £ 3 or £10. If you had traded with a stake of £5 in this example you would have made a profit of £237.5 or a loss of £112.50 (plus or minus a financing). Trading with larger sizes increases your risk so make sure you understand the risks involved.

Stop Loss Example

Example Trade – Using a stop loss

A ‘stop’ or ‘stop loss’ is an order normally placed to limit the loss on an open position. You can also use it to enter a market at an inferior rate, allowing you to enter the market on a break out of the current trading range.

1. ABC Corp is trading 134.25 / 134.75. You decide to go long £5 per point at 134.75.
2. You want to place a stop loss so that your maximum loss if your position moves against you will be £100. Therefore you place a stop loss at 114.25 (£100 / £5 = 20 points below the sell price).
3. If the price of ABC Corp moves below your stop loss of 114.25 then your position will automatically be closed out and you will make a loss of £100.
4. If the price of ABC Corp rises then you can cancel your stop loss or move it to a different level free of charge.
   

   Please note that stop losses are not guaranteed. This means that if a price of an instrument falls significantly and never trades at the price your stop loss is specified at you will be taken out at the next available price. This is also known as 'gapping through'.

5. For example, XYZ Ltd are trading at 656.25 / 657.25. You decide to go long at £3 per point and place a stop loss at 600. Overnight, the chairman of XYZ Ltd dies and at 8am the price opens on the stock exchange at 550.75 / 551.75. As the share price never trades at 600 you will be taken out at the first trade price which is 550.75 and you will lose £319.50.

Stop losses are free of charge to place but are not guaranteed. If you want to guarantee a position you must place a Controlled Risk Bet (CRB).

CRB Example

Example Trade – Controlled Risk Bet

Controlled Risk Bets (CRBs) enable you to place a stop order at a predetermined level in order for you to guarantee your maximum loss. Therefore you have a known ‘worse case scenario’ should the market move against you which acts as an insurance. As CRBs are guaranteed (unlike stop losses) there is a premium to pay for this type of order.

1. 123 Plc is trading 445.25 / 448.75. You decide to go long £10 per point at 448.75
2. You want to place a stop loss so that your maximum loss if your position moves against you will be £350. Therefore you place a stop loss at 410.25 (350 / £10 = 35 points below the sell price)
3. If the price of 123 Plc moves below your stop loss of 410.25 then your position will automatically be closed out and you will make a loss of £350
4. If the price of 123 Plc falls to 300.00 overnight due to a profits warning you will still be closed out at 410.25 as you have paid a premium to be stopped out. A normal stop loss would have taken you out at 300.00 thus incurring a £1487.50 loss.

CRB Example

Share Trade Example

1. Equity Plc is trading at 159.75 / 161.25. You think that the new product they have just released will sell well and the share price will rise so you decide to buy
2. You place a buy bet of £1 per point (also known as going long) at 161.25 NB Share prices are quoted in pairs – the bid and the offer. The bid or ‘sell’ price is quoted first and the offer or ‘buy’ price is quoted second
3. Equity Plc is margined at 5% - this means that you only require 5% of the total position’s value will be allocated from your account as initial margin. In this example, £8.06 ((£1 x 161.25) x 5%). Remember, if the share price moves against you it is possible to lose more than your initial £8.06 margin
4. Your prediction is correct and 2 days later the share price rises by 20 points to 179.75 / 181.25 You decide to close your trade and sell at 179.75
5. You have made 18.5 points (179.75 - 161.25) x £1 = £18.50 revenue
6. You held the position for 2 days which means you have incurred 2 nights financing charge. You will pay financing if you hold positions overnight because CMC Markets are effectively lending you money from to hold that position. If you go short, you may receive a financing payment from CMC Markets
7. The financing charge for the first night is £0.04. This is calculated by taking £161.25 (value of your exposure to the market at the end of each day) x LIBOR + 3% (which in this instance +8%) / 365 (number of days in the year = £0.04. The second night the share price is slightly higher and the financing charge is £0.05
8. Therefore you deduct both night’s financing charges from the total revenue and realise a total profit of (£18.50 - £0.09) = £18.41

Please remember that had the market moved against you, you would have made a loss on this trade.

Index Example

Index Trade Example

1. The UK 100 is currently trading at 6569 / 71. You think the market is due a correction so you decide to short the UK100 at £5 per point
2. You place a sell order at 6569
3. The Notional Trading Requirement (NTR) on the UK100 is 50. NTR is applied to Index, Treasury, Commodity, Forex, Sector and Bullion Bets and is a simple method of calculating an Initial Margin for less volatile instruments. Each instrument that uses NTRs has an NTR value which you simply multiply by your stake to determine your margin requirement
   

   Your margin requirement will be £250 (£5 x 50 = 250)

4. You hold the position overnight. The UK100 closes at 6600 that evening. The financing is calculated by taking your total exposure to the market 33,000 (close price x your stake) x LIBOR (assume 5%) - 3% / 360 = £1.83. £1.83 is paid to you from CMC Markets to hold this position overnight. If you were long you would incur a financing charge
5. You close your position the next day at 6623 / 6625. You have lost 56 points (6569 - 6625) x £5 = £280 + financing payment of £1.83 = net loss of £278.23

FX Trade Example

FX Trade Example

1. You think that Sterling is going to appreciate against the US Dollar. You decide to go long at £2 per point when the current price is 2.0137 / 40
2. The Notional Trading Requirement (NTR) on GBPUSD Cash is 150. Your total margin requirement will be 300 (150 x £2)
3. You let the position roll over to the next day so you incur a night's financing. FX Financing is calculated differently from Stocks, Indices and Sectors as they are based on the daily interest rate differential between two currencies (known as Tom/Next swap rates). In this example it is 0.09 of a pip for this particular night.
4. The closing price at the end of the day is 2.0165. The financing applied to this position can be calculated by multiplying your stake in GBP by the tom/next swap points for the instrument held. In this example your stake is £2 x 0.90 points = £1.80 financing cost.
5. You close your position the next day at 2.0185 having made 45 points (2.0185 - 2.0140). At £2 a point this is a gross profit of £90. Subtract the financing charge of £1.80 gives you a net profit of £88.20.

Please remember that had the market moved against you, you would have made a loss on this trade.

Commodity Example

Commodity Trade Example

1. US Crude is trading at 66.20 / 26. You think that oil may hit $70 in the next couple of weeks so you decide to place an up bet at £3 per point
2. The NTR on US Crude is 140. NTR is applied to Index, Treasury, Commodity, Forex, Sector and Bullion Bets and is a simple method of calculating an Initial Margin for less volatile instruments. Each instrument that uses NTRs has an NTR value which you simply multiply by your stake to determine your margin requirement. Therefore the total margin requirement will be £420 (140 x £3)
3. You decide to close the trade 3 weeks later when the price of US Crude hits $72.08 / 14
4. There is no financing to pay as US crude is a futures contract. The interest charge has been built into its spread as part of the cost of carry. There is no overnight financing charge to pay
5. Your total profit will be (72.08 - 66.26 = 582 points x £3) = £1746

Please remember that had the market moved against you, you would have made a loss on this trade.