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.
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 any commissions on the top of the spread as everything is already incorporated into it. What is more important, our spreads are tight and fixed (Terms & Conditions obviously apply)
When you trade our products you are taking a position on whether the market will rise or fall and 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 different with the indices, when trading them your position has an equivalent contract value, which determines the equivalent exposure. So if for example the UK100 (which represents FTSE100) has got a contract value of £10, by entering into a £1 per point trade you’d 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.
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 provide a fraction of the total amount and as the rest of the investment is provided by us, you are still able to fully participate in the total income from the investment.
You should however bear in mind, that borrowed capital usually attracts interest charges; hence these costs may reduce the overall profits from the investment (or increase the losses). Funding costs are considered the component that compensates for the expenses of the issuer.