The best way to explain how Spread Betting works is through an example:
ABC Corp is trading at 159/160 and you think the price is going to rise in value.
You decide to place a ‘buy’ bet so you buy ABC Corp at 160.
Since you are new to Spread Betting, you decide to trade the minimum amount of £1 per point.
You now have the equivalent of 100 Shares with a value of £160.
Your margin requirement with RBS Spread Trading for ABC Corp is 5% therefore £8 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 £8 initial margin.
You place a buy bet on Marketmaker® for £1 per point on ABC Corp shares at 160.
Two days later you see that ABC Corp has risen to 185/186.
Therefore you choose to sell at 185 and realise your profit.
You bought at 160 and sold at 185 which means ABC Corp rose by 25 points per share 25 x £1 = £25
You held the position for two days which means you incurred two nights financing charge. This is how you calculate the financing charge
£160 (value of the position) x LIBOR + 2.5% (which in this instance = 8%) /365 (number of days in the year) x 2 (number of days position is held) = £0.07
The financing is deducted from the total revenue, realising a profit of £24.93.
