Let’s say you think the price of Barclays shares is going to rise. You could decide to buy £1,000 worth of shares, which would cost you £1,000, plus any broker commission. If the share price rises by 5% you can sell your shares for £1,050 and make a £50 profit.
Alternatively, you could place a spread bet to give you exposure to £1,000 worth of Barclays shares. Our margin for UK100 equities is 20% so the cost of opening this position is £200 (£1,000 X 0.20). When the share price rises by 5% you decide to close your position. Again, your profit is £50, which represents a return of 25% on your initial outlay.
Leverage is one of the key advantages of spread betting as it gives you access to investment opportunities without making a large initial outlay. But you should always remember that potential losses can also be greater than your initial outlay.