TREASURY BOND TRADING EXAMPLES
When you’re trading treasury securities via a CFD or spread bet, you won't own the asset. Instead, you will make a bet or speculate - will it gain or lose money? You need to look at factors that can affect the future value of a country’s bonds, such as a worsening of the economy, a decline in the value of its currency or a looming political crisis.
For example, if you believe an economy is likely to suffer, you will expect the value of the treasury bond to fall, in which case you will choose to short. Simply click ‘sell’ and choose how many units you wish to sell.
You can then use your platform of choice to monitor the direction of the market. If you do not have an automatic stop position, you may decide to close your position by buying at the new price. Depending on how things work out, this is a chance to either maximise your gains or limit your losses.
Let’s say the Gilt future expiring in June is quoted at a bid/ offer price of 12172/12175
Scenario A: A profitable trade
You expect the Gilt price to rise so you buy one contract of the June Gilt future (this is equivalent to making a 1 GBP profit or loss for every point it moves).
You bought at 12175, the price went up and the quote is 13120/13123 and you wish to take your profits. You sell your position by closing it at the selling price of 13120
Your total profit = (13120 - 12175) * 1 = £945
Scenario B: An unprofitable trade
You expect the Gilt price to rise, so you buy one contract of the June Gilt future (this is equivalent to making a 1 GBP profit or loss for every point it moves).
You bought at 12175 but the price actually goes down and the quote is 11120/11123. You wish to take a loss. You sell your position by closing it at the selling price of 11120.
Your total profit = (11120 - 12175) * 1 = -£1,055
As with any CFD or spread bet, success depends on understanding how the instruments work, good market knowledge and an eye for where the market might move. Please remember that using leverage can enable you to gain a large exposure to a financial market while only tying up a relatively small amount of your capital. In this way, leverage magnifies the potential for both gains and losses, and it is possible to lose all the capital you invest.