Trading Tips
Trading Tips - 23 May 2013 |
The above list of Trading Tips / Broker Ratings is not an exhaustive list of broker recommendations. The above content does not constitute investment advice. All reasonable efforts have been made to present accurate information. Neither CleanFinancial.com nor any contributing company or individual accepts any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.
For the sake of clarity, where a broker reiterates a rating with an identical target price within two weeks of the preceding rating, the older identical rating will normally be removed.
IG Index » "With IG Index you get all the normal advantages of
Spread Betting plus 8000 markets, narrow spreads, advanced charting,
24 hour spread betting ..." » read
IG Index review.
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Trading Tips, Broker Ratings and What If? |
Looking at the broker ratings for 23 May 2013, Glencore Xstrata last traded at 337.8p but Jefferies think that the Glencore Xstrata share price could increase by 25.81% and hit 425p.
Of course, investors should remember that these 'broker recommendations' are just opinions and they shouldn't be taken as investment advice.
However, your own analysis may also suggest that the Glencore Xstrata share price is looking undervalued.
If you wanted to speculate on Glencore Xstrata and the last price was 337.8p then remember that, in order to create the 'spread', companies like Financial Spreads typically only add 0.05% to either side of the underlying market.
Therefore, Financial Spreads might give the Glencore Xstrata market a spread of 337.5p - 338.1p.
This means that you can spread bet on the share price to:
 Rise above 338.1p, or
 Fall below 337.5p
When you spread bet on UK equities you trade in £x per penny. So if you risked £4 per penny and the Glencore Xstrata share price changes by 5p then that would change your profits (or losses) by £20. £4 per penny x 5p = £20.
When spread betting, most investors like to trade shares using 'rolling' trades like the Financial Spreads 'Rolling Daily' markets.
There is no set closing date for a Rolling Daily market. If your trade is still open at the end of the trading day, it will rollover to the next day.
If your trade rolls over and you are spread betting on the market to:
Rise, then you'll be charged a small overnight financing fee, or
Fall, then you'll often receive a small credit to your account
Note that Rolling Daily markets are available with firms like InterTrader, Financial Spreads and Capital Spreads. With these firms the financing fee is usually charged at LIBOR + 2%. For more detail, see Rolling Daily markets.
What if the Broker Rating is Right? |
Let's say you see the Jefferies 'Buy' rating for Glencore Xstrata and your own analysis of the share price also suggests the FTSE 100 company is undervalued.
Therefore, if one of the spread betting companies is showing a spread of 337.5p - 338.1p you could buy at 338.1p.
So let's say you buy the market for £2 per penny. If so, you make a:
- Profit of £2 for every penny that the Glencore Xstrata shares move higher than 338.1p.
- Loss of £2 for every penny that the share price falls below 338.1p.
How to work out your P&L:
If you Buy a spread bet:
- Calculate how far the market has moved by subtracting the Opening Price of the market from the Closing Price (this could be a negative number)
- Multiply that price difference by your stake to give your P&L
If you Sell a spread bet:
- Calculate how far the market has moved by subtracting the Closing Price of the market from the Opening Price (this could be a negative number)
- Multiply that price difference by your stake to give your P&L
Back to the example.
Let's say the share price does increase by 25.81% and gets to the Jefferies target price of 425p.
If so, the spread betting market might move to 424.7p - 425.3p. Therefore, you could guarantee your profit and close your trade by selling at 424.7p.
So, with the same £2 stake your profit would be calculated as:
P&L = (Closing Price - Opening Price) x stake
P&L = (424.7p - 338.1p) x £2 per penny stake
P&L = 86.6p x £2 per penny stake
P&L = £173.20 profit
What if the Broker Rating is Wrong? |
Of course your research could be wrong, as could the broker's opinion. Let's say the FTSE 100 company fell by 21% to 266.9p.
If so, the spread could move to 266.7p - 267.1p.
Therefore, rather than incur a lot of overnight rolling costs, and run the risk of a further drop in the share price, you might choose to close your position in order to restrict your losses.
With the spread now at 266.7p - 267.1p you would close your trade by selling at 266.7p. If so, you would lose:
P&L = (Closing Price - Opening Price) x stake
P&L = (266.7p - 338.1p) x £2 per penny stake
P&L = -71.4p x £2 per penny stake
P&L = -£142.80 loss
Please note that the above prices and spreads are for example purposes only.
Note that a 25.81% move is a large move so your trade may have been open for some time. If so, your P&L would need to be adjusted by any rollover/overnight financing fees.
If a company goes ex-dividend whilst your trade is open then that can also add an extra cost to any buy trades and an extra profit to any sell trades.
IG Index » "With IG Index you get all the normal advantages of
Spread Betting plus 8000 markets, narrow spreads, advanced charting,
24 hour spread betting ..." » read
IG Index review.
|
Risk Warning: Financial Spread Trading and CFDs carry a high level of risk to your capital. You may lose more than your initial investment. They may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by IG Index which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 114059.
'Trading Tips' edited by IG Index, updated 23-May-13
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