The following example compares a direct equity trade with an
equivalent exposure to the underlying investment using a spread
bet.
You anticipate an increase in the share price of ABC Plc from
464p to 494p over the next month. In this example we compare
the potential returns of a direct share trade and a spread bet
on ABC Plc.
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Share trading |
Spread bet |
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| Current share price |
464p |
464.7 |
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The slightly higher purchase price is to take into account no
commission with spread bets |
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| You buy |
10,000 shares |
£100 per point |
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100 shares = £1 per point spread bet. Therefore 10,000 shares
is the equivalent of a £100 per point spread bet |
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| Initial cash outlay |
£46,400 |
£4,647 |
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Spread bets on shares only require 10% of the toal trade size
as a deposit |
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| Stamp Duty |
£232 |
£0 |
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Stamp duty is not applicable to spreadbets saving 0.5% on all
buy transactions* |
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| Commission |
£15 |
£0 |
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Your current stockbroker may charge you a flat rate of £15 for
example for a transaction of this size. Spread bets never incur any
commission |
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| Total outlay |
£46,647 |
£4,647 |
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| You were correct and the share price of ABC
Plc rose to 494p over the next month. You decide to close your
position. |
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| Current share price |
494p |
493.3p |
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The slightly lower selling price is to take into account no
commission with spread bets |
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| You sell |
10,000 shares |
£100 per point |
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To close an open 'long' postion you sell |
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| Commission |
£15 |
£0 |
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| Profit |
£2,735 |
£2,860 |
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| Less Capital Gains tax (40%) |
£1,101.20 |
£0 |
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Spread bet profits incur no Capital Gains Tax liability. The
rate used is based on a higher earner tax rate. Tax laws can
change. |
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| Total Profit after tax |
£1,651.80 |
£2,860 |
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| Return on Capital |
3.5% |
61.5% |
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The significantly higher return on capital was the result of a
much lower initial capital outlay for spreadbets as opposed to
share trading |
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| Note, if you were not correct in predicting
the direction of price movement of ABC Plc you would lose
money. Profits and losses can quickly exceed your initial
deposit. |
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