For example, you think that the price of BG GROUP [BG.L] will rise. The current price is 935p to sell (bid), and 943p to buy (offered). These are prices quoted to you by the bookmaker and are based on the far future. You are betting that the price will rise so you place a 'buy' bet of £10 per penny @ 943p. This is called 'buying to open'.
The price rises to 962p to sell, 970p to buy. You decide to close the bet at that level, and you instruct the bookmaker to 'close the bet @ 962p.
Bought to open BG GROUP Ordinary shares @ 943p x £10 per 1p 943p.
Sold BG GROUP Ordinary shares @ 962p x £10 (to close the previous opening bet) 96 2p.
Profit 19p x £10 per 1p = £190 + 19p.
If the share price had moved against you (i.e. it dropped instead of rising), you would lose money at the same rate. For example, you placed a 'buy' bet to open at the offered price of 943p. The share price fell to 902p bid, 910p offered. You closed the bet at the bid price (to close a 'buy' bet you have to sell at the bid price) @ 902p.
Bought to open BP Ordinary shares @ 943p x £10 per 1p 943p.
Sold to close BP Ordinary shares @ 902p (to close the opening bet) 90 2p.
Loss 41p x £10 per 1p = £410 - 41p.
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Suppose that you thought the price of BP would fall. The current price is the same as in the example above, i.e. 935p to sell (bid), and 943p to buy (offered). You are betting that the price will fall so you place a 'sell' bet of £10 per penny @ 935p to open. The share price fell to 902p bid, 910p offered. You closed the bet at the offered price (to close a 'sell' bet you have to buy at the offer price) @ 910p.
Sold to open BP Ordinary shares @ 935p x £10 per 1p 935p.
Bought to close BP Ordinary shares @ 622p (to close the opening bet) 910 p.
Profit 25p x £10 per 1p = £250 + 25p.
If the share price had moved against you (i.e. it went up instead of down), you would lose money at the same rate. For example, you placed a 'sell' bet to open at the bid price of 935p. The share price rose to 962p bid, 970p offered. You closed the bet at the offer price (to close a 'sell' bet you have to buy at the offer price) @ 970p.
Sold to open BP Ordinary shares @ 935p x £10 per 1p 935p.
Bought to close BP Ordinary shares @ 970p (to close the opening bet) 970 p.
-35p.
Loss £10 per 1p x 35p = £350.
By placing a financial stake through a bet, you are leveraging or 'gearing up' the relatively small amount of capital employed compared with purchasing the shares outright at the start. If you had wanted to buy the shares (invest capital) instead of betting on the price movement, you would have had to lock up capital and you would have incurred stockbroker's commission as well as government stamp duty.
Instead you have contracted to pay a certain sum of money (larger or smaller depending upon the amount of your stake) if your judgement turns out to be wrong and you lose your bet. If you win, you receive cash paid into your account immediately. You have not had to invest any capital into shares or stocks or any other instrument.
Even if you are convinced that a share that is listed on a recognized stock exchange is likely to fall, under current regulations it is almost impossible to make money by selling them unless you have previously bought them. This is called 'going short' of a share, and the practice is frowned upon by some. You can bet that the price will fall with total impunity, and you can indeed make money by so doing.
You can vary the amount of your stake every time you place a bet to open, but you must close the bet with a stake of the same amount. The amount that you stake will depend on your calculation of how much you are prepared to lose before you place a bet. It is good practice to 'write off' the whole amount of the potential loss when you place the bet. The way to establish this amount is by imposing guaranteed stop-loss limits every time you open a bet.
You might decide to bet on an index, such as the FTSE 100, or the Dow Jones. You can bet on the daily cash price of either of these indices, which means that your bet dies when that market shuts at the end of the trading session, unless you have closed the bet before that time, or, you can bet on the futures price for anything between three and six months ahead.
>> Betting on Shares: Daily Share Bets vs Futures
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