Spread Betting Examples
Example Trade – Controlled Risk Bet
Controlled Risk Bets (CRBs) enable you to place a stop order at a predetermined level in order for you to guarantee your maximum loss. Therefore you have a known ‘worse case scenario’ should the market move against you which acts as an insurance. As CRBs are guaranteed (unlike stop losses) there is a premium to pay for this type of order.
- 123 Plc is trading 445.25 / 448.75. You decide to go long £10 per point at 448.75
- You want to place a stop loss so that your maximum loss if your position moves against you will be £350. Therefore you place a stop loss at 410.25 (350 / £10 = 35 points below the sell price)
- If the price of 123 Plc moves below your stop loss of 410.25 then your position will automatically be closed out and you will make a loss of £350
- If the price of 123 Plc falls to 300.00 overnight due to a profits warning you will still be closed out at 410.25 as you have paid a premium to be stopped out. A normal stop loss would have taken you out at 300.00 thus incurring a £1487.50 loss