Ok so i had this idea earlyer.. im kinda new to all this .. but if for instance I placed a sell spread bet on a company for lets say for instance 10 pound a point and it was at 100 points currently and a week later it went bust or merged with another company (effectivly removing that share from the market listings) would i be granted the full 10,000 pound ?

I asked the customer service desk of a firm and they were not even sure.. just hoped some informed indvidual here could shed some light on this..

Be a good time to stick some money on those airlines going down if so ^_^

Hope i here some responses!

Regards~
Max

I think the problem is that the value would be worked out on the specifics of the agreement - that's presuming that such a stock would even be eligible for continued spread betting.

Might be worth checking the Terms of Agreement.

Spread bet firms (and CFD firms for that matter) hedge their positions in the market by buying or shorting shares, their money is made on the spread. For example if 100 clients did a CFD on 1000 BT shares and 100 shorted 1000 BT shares, then they would be flat and coudn't lose so they would not buy or sell any BT shares, they would be just making a market.

If, as in your question, BT went bust, the 100 clients who shorted would get 100% of the 'upside' of BT going out of business, paid for by those who had 'gone long' or bought shares. If their spread was 10% the firm (the 'house' in gambling terms) would make this as thier profit.

A spread or CFD company would 'hedge' any exposure (in some cases they actually take the risk and don't hedge) by buying or selling their net exposure. In the above example; if 90 clients went 'long' 1000 and 100 clients went 'short' 1000 then, all things being equal, would 'hedge' their position by selling (shorting) 10,000 shares (10 clients X 1000 BT shares) to hedge their exposure, locking in their 10% (in this example) 'spread'.

If the 'house' thought that BT was going up, they may take a gamble and not hedge, if the BT shares went up they would make more profit, if it went bust they would lose.

Basically, a spread or CFD is a derivative construct created by the firms as market makers.... sorry to rabbit on, but to answer your question, if a company went bust then you would get all of that downside because your exposure is to the company's derivative, not the share itself...

Of course, it is a little more complicated than this as it depends on when clients bought, what the price was etc etc. But the general principal stands that CFD and Spread Bets are hedged, or not, depedent on the suplliers position and risk.

Longwinded but hope that helps.

Really appreciable post.
Thanks!