Spread Betting Index / Indices

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Spread betting guide Stock market indices example

Stock market indices represent the underlying performance of a group of stocks from a particular stock market. In the example below we quote the FTSE 100 index, which encompasses the top 100 companies, by market capitalisation, traded on the London Stock Exchange.

Stock markets can move in reaction to a variety of economic and political factors, so Spread Betting on these indices is one of the most interesting and exciting forms of speculation available.

We will call you Arthur Dent, with the following account details:

Example: Arthur Dent

Acct Balance:	£2,000
Credit allocation:	£0
Required margin:	£0
Open P&L:	£0
Total	£2,000

You call the Spread Betting trading desk (or log on to the site) and ask for a quote on the December FTSE (the expiry date being in the morning on the third Friday in December). The actual December FTSE future in the market is trading at 4233.5 - 4234.5.

We quote a spread of 4230 - 4238.

Now you have two choices to make:

• Choice 1: you think the spread is too low and you purchase the December FTSE at the higher figure of 4238 for your chosen stake of £5 per point.
• Choice 2: you think the spread is too high, and you sell the December FTSE at the lower figure of 4230 for your chosen stake of £5 per point.

To place a bet, you must have sufficient funds on account to cover the initial margin (deposit). In the case of FTSE futures, the initial margin is charged at a fixed rate of 300 times the stake. So for a £5 per point bet, the initial margin requirement is £1,500. All or part of the margin requirement is removed from your account when the position is full or part closed respectively.

Your Account status after opening the position:

Example: Arthur Dent

Acct Balance:	£2,000
Credit allocation:	£0
Required margin:	£-1,500
Open P&L:	£0
Total	£500

On expiry, the December FTSE closes at 4350.

Result 1:

You were correct in thinking that the FTSE would rise. Your profit is £560, calculated as follows:

4350 (market closed) - 4238 (bought) = 112 ticks

112 x £5 (stake) = £560 (PROFIT)

Example: Arthur Dent

Acct Balance:	£2,560
Credit allocation:	£0
Required margin:	£0
Open P&L:	£0
Total	£2,560

Result 2:

You were incorrect in thinking that the FTSE would fall. Your loss is £600, calculated as follows:

4350 (market closed) - 4230 (sold) = 120 ticks

120 x £5 (stake) = £600 (LOSS)

Example: Arthur Dent

Acct Balance:	£1,400
Credit allocation:	£0
Required margin:	£0
Open P&L:	£0
Total	£1,400

 

Get Started!

If you would now like to get started have a look at some of the reviews on the spread betting companies page and choose one to spread bet on any market index.