Whenever you spread bet on a financial market, you’re presented with a buy price and a sell price. This is true for digital 100s as well.
If you were to bet on the digital 100 proposition ‘FTSE 100 to be above 6400 at 3pm’, you might be presented with something like:
If you think the statement is true and the FTSE 100 will be above 6400 at 3pm, you would ‘buy’ this market at 89.5. If you disagree and think it is false, you would ‘sell’ the market at 86.2.
As these are digital 100 prices, they will always fall in the range of 0 to 100. The closer the prices are to 100, the more likely the statement will end up being true – according to your provider anyway. The closer they are to 0, the more likely your provider thinks the statement will be false.
You might prefer to think of it in percentage terms. The prices above suggest about an 88% chance of the statement coming true.
If you hold the bet to expiry, your profit or loss will be your bet size multiplied by the difference between 100 or 0 and the level at which you 'bought' or 'sold'.
For example, if you ‘bought’ the above digital 100 at 89.5 betting £10 per point and the statement was true, it would settle at 100. This means your profit would be £105 (10.5 x £10). If the statement was false and the digital 100 settled at 0, your loss would be £895 (89.5 x £10). Digital 100s are therefore limited-risk products – you know exactly how much you stand to win or lose when you place your bet.
You also have the option, if you wish, to close your position before the digital 100 expires, in which case your profit or loss will be determined by the difference between your opening and closing prices.
Digital 100 markets
Digital 100 opportunities are available on a host of global markets, with timeframes usually ranging from five minutes to one month. Depending on your provider, there are digital 100s relating to the price movements of indices, forex, commodities, shares and bitcoin. In addition, providers such as IG offer ‘special' digital 100s based on major economic indicators, such as US non-farm payrolls, or the outcome of key political events like the UK general election.
Types of digital 100
There are a number of different types of digital 100s, for example:
A ladder digital 100 asks whether you think the underlying market will finish above a stated level at a certain time, settling at 100 if it does. Ladders are so called because for each timeframe you have the choice of a number of different levels with small gaps in between.
Up or down
Up or down digital 100s allow you take a position on whether the underlying market will be up or down on the day at a certain point in time. An up digital 100 settles at 100 if the underlying market is above the previous day’s closing price at the specified time, and 0 if it’s not. A down digital 100 does the opposite, settling at 100 if the market is below its opening price, and 0 if it isn’t.
A one touch digital 100 is a way to bet on whether the market will touch or go through a particular level at any time before expiry, settling at 100 if it does, and 0 if it doesn’t.
Target digital 100s enable you to take a position on whether an underlying market’s closing price will be within a certain range. For example, 'Germany 30 to finish down 0-50 points' will settle at 100 if the underlying market closes between 0 and 50 points lower than its previous closing level.
A form of target, high-low digital 100s challenge you to predict whether a market’s daily high or low will be within a specific range (in terms of the movement from the market’s previous closing level).
A tunnel digital 100 also focuses on the movement of a market from its previous closing level, challenging you to predict whether the market will keep within or break out of a certain range. For example, ‘FTSE to keep in range -40 to +40’ settles at 100 as long as this range isn’t breached during the day’s trading.
Impact of leverage
When you spread bet on digital 100s, you’ll need to put up a margin payment which may only be a small proportion of the value of your position. Remember that your potential loss could be much greater than this, however.
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