In the following scenario, trader x decides to take a position on the FTSE100. Let’s say that the FTSE is currently trading at a level of 6949:6950, meaning that the spread is currently one point. The trader decides to ‘buy’ £10 worth of the FTSE at the 6950 level. Since the ‘sell’ level is 6949, the trader starts off £10 down, because if the trader were to close this position immediately that’s the loss they would make.
Let’s say that the index subsequently moves up to a level of 6955:6956. If the trader were to sell his £10 worth of FTSE at this point, the profit on the trade would be £50; the first point of movement in the trader’s favour would turn their -£10 position into a £0 position (where they would be making neither a profit or a loss and would break even if they exited at this point), with the following five points of movement then being pure profit.
However, let’s say that instead of the FTSE’s value rising, it instead falls to a level of 6945:6946. In this case, the trader would lose £50 if they sold at this point, because the price at which that £10 worth of FTSE is being sold is five points lower than the price at which it was purchased at.