Pricing

Spread betting products fully emulate the price of the underlying asset which is taken directly from the underlying exchange or delivered by the liquidity providers. Products are quoted in the asset’s local currency, however all margin requirements, profits and losses are quoted in the account base currency.


Spread

As we are compensated by the spread, i.e. the difference between bid and offer, or the sell and buy price, a mark-up is added to the quote.

Spread is considered the main cost for the trader. By trading with us, you do not pay commissions on the top of the spread as this is already incorporated. What is more, our spreads are tight and fixed (T&Cs apply).

Example spread

Let’s look at the benchmark index of the UK’s leading companies, the UK100, which represents the underlying FTSE100. Our spread equals 1 point. In order for you to make profits the market has to move by at least one point. So, if you bought while our quote was 5903.50-5904.50, the market has to move by one point in your favour before you start making profit. If it moves to 5904.50-5905.50, you break even, as you will sell at 5904.50 to close the position. Any price higher than that means you are in profit.

If the spread was 2 points, then you would need to wait for the markets to move at least by 2 points before starting to make any profits. Hence, the smaller the spread, the quicker you may get into profits as it takes less of a movement.


Stake Sizes and Notional Value

When you trade our products you are taking a position on whether the market will rise or fall by staking an amount per point on the move. This makes it very simple to calculate potential Profit and Loss. However, your stake will also have a notional size which corresponds to the equivalent position that your trade would be worth as a physical position. As an example, a £1 stake on a UK stock would be the equivalent of having 100 shares. This is because the point movement in UK stocks is £0.01.

Therefore, to make £1 per point you would need 100 shares (100 x 0.01 = £1) This is useful to know if you are looking at hedging a physical position for instance. If you had a physical share position of 150 shares in Vodafone plc and you wanted to hedge the full amount, you would know that you would need to sell £1.50 per point. (150 x 0.01 = £1.50).

It works slightly differently with indices, as when you are trading them your position has an equivalent contract value which determines the equivalent exposure. So if, for example, the UK100 (which represents FTSE100) has a contract value of £10, by entering into a £1 per point trade you would have the equivalent exposure of one tenth of a physical FTSE contract. You can find all the details relating to the contract sizes and values in the Product Information Section.


Leverage

You can fully participate in the price action of the underlying instrument without having to contribute the full amount usually necessary for the transaction. As a trader/investor you only need to provide a fraction of the total amount and the rest of the investment is provided by us, you are still able to fully participate in the total income from the investment.

Example Leverage

Suppose that FTSE is now at 5000, the margin is 1%, i.e. to open a position you would need to deposit £50. This gives you a leverage of 100:1, meaning that your position has a total value 100 times larger than your initial outlay.

Should the market move by 1% to 5050, you would have made a profit of 100% (by investing 50 you gain 50).

This may also work the opposite way. If the market moves down by 1%, to 4950, you lose 100% of your initial capital. i.e. 100% of your investment.

The application of leverage magnifies the price movements in the markets. It can magnify both the profit as well as losses. The losses can exceed your initial outlay.

You should however bear in mind that borrowed capital usually attracts interest charges; hence these costs may reduce the overall profit from the investment (or increase the losses). Funding costs are considered the component that compensates for the expenses of the issuer.