In the Forex markets GBP v USD fell to a 14 month low and is trading below the $2 mark to around $1.9945. With Financial Spreads, the Sterling / Dollar (December) market is trading at 1.9971 - 1.9974 suggesting that they don't think there will be a quick recovery. Problems at Northern Rock are thought to have pushed the price down. High interest rates have kept the pound popular with buyers however if the credit problems force an interest rates cut and/or a change in Bank of England Monetary Policy then, according the Simon Denham of Capital Spreads "if the banking crisis gets worse, then, for all the value in the high interest rates, we may be in for a good old fashioned run on Sterling"
As with many markets, spread bettors can financial spread bet on the value of the FX markets. Eg spread trading on the GBP / USD market falling below 1.9971 increasing to more than 1.9974 by 14-Dec-07.
For the Sterling / Dollar market, you trade in £X per point, where a point is 0.0001 of Sterling / Dollar movement. eg if your stake was £20 per point and the Sterling / Dollar moves 0.0005 then that would be an £100 difference to your profits.
So looking at an example, let's say you see the live prices on Financial Spreads and the spread of 1.9971 - 1.9974 and you think that the GBP / USD market will increase above 1.9974.
Therefore you buy at 1.9974 for a stake of £10 per point.
And so let's say that by the closing date ie, 14-Dec-07 the GBP / USD market settles at 1.9995.
If so, your profit is worked out by taking the difference between the settlement value of 1.9995 and the price you made the spread bet at, ie 1.9974 and then multiplying that by the stake per point of movement.
Profit and loss = ((1.9995 - 1.9974) / 0.0001) x £10 per point stake.
= (0.0021 / 0.0001) x £10 per point stake.
= £210 profit.
However if the market did not move as forecast and had the GBP / USD price gone down and settled down at 1.9916, then you would have lost money on your trade.
Profit and loss = ((1.9916 - 1.9974) / 0.0001) x £10 per point stake.
= (-0.0058 / 0.0001) x £10 per point stake.
= -£580 loss.
Forex Spread Betting – Selling the GBP v EUR Market
Elsewhere in the GBP v EUR forex markets, Sterling also fell to its lowest level against the Euro since July 2006.
GBP / EUR (December) is currently trading at 1.4401 - 1.4405. ie you can spread bet on the Sterling / Euro rate finishing:
a) below 1.4401, or
b) above 1.4405
by the settlement date of 14-Dec-07.
Again, for the Forex Sterling / Euro market, you trade in £X per point, where a point is 0.0001 of Sterling / Euro movement. For example, if your stake was £25 per point and the Sterling / Euro moves 0.0003 then that would be an £75 difference to your profits
Lets say that after your market analysis, you feel that the GBP / EUR exchange rate appears as though it will decrease to less then 1.4401.
Therefore you sell at 1.4401 for a stake of £10 per point.
If the GBP / EUR rate closes at 1.4391 then your profit is worked out by taking the difference between the price you sold at, namely 1.4401 and the final price of 1.4391 and then multiplying that by the stake per point.
Profits = ((1.4401 - 1.4391) / 0.0001) x £10 per point stake.
Profits = (0.001 / 0.0001) x £10 per point stake.
Profits = £100 profit.
However had the Sterling / Euro rate risen and closed at a higher than expected level of 1.4460, then you would have lost money on your trade.
Loss = ((1.4401 - 1.4460) / 0.0001) x £10 per point stake.
Loss = (-0.0059 / 0.0001) x £10 per point stake.
Loss = -£590.
'Spread Betting on FX' by DB, updated 11-Feb-08
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