Spread betting example
With spread betting, your profit or loss is determined by the difference between the buy price and the sell price of the financial instrument that you are trading. Imagine this scenario about a fictional telecommunications provider called Talktone PLC (TT Plc):
A long trade
Placing a long spread bet
Talktone Plc is trading at 159.00/160.00 (UK prices are quoted in pence).
You think the price is going to rise in value so you decide to go long. Since you are new to spread betting you place a buy bet of the minimum bet size of £1 per point at the buy price of 160.00.
You place a buy bet on Marketmaker at 160.00 on TT Plc at £1 per point.
You now have the equivalent of 100 Shares with a value of £160.
Margin
Your margin requirement with CMC Markets for TT Plc is 10%, therefore £16 will be allocated from your account against this trade as initial margin.
£160 x 10% = £16
Remember if the share price moves against you, it is possible to lose more than your £16 initial margin.
Closing your position
Later that day you see that TT Plc has risen to 185.00/186.00 You choose to sell at 185.00 and realise your profit.
Your P&L
You bought at 160.00 and sold at 185.00 which is a difference of 25 points
25 x £1 = £25 profit
Had the price fallen by 25 points instead of risen, you would have lost £25. Profits made by a UK resident from spread betting are exempt from capital gains tax (CGT) and there is no stamp duty.
