Spread betting on an individual company can prove a profitable choice for traders going long and buying prior to a firm’s share price rising.
Traders choosing to spread bet will continuously analyze the markets and aim to profit from prices that either rise or fall. In the instance where they think a positive announcement regarding results or the like is imminent for a particular company, they will choose to buy and go long whereby they will gain from every point the share price rises.
As recent as Wednesday 29th February 2012, the company that owns British Airways, International Consolidated Airlines Group, announced a fourth quarter operating profit of £28.7 million (before exceptional items) for 2011.
This showed great improvement on 2010’s results for the same quarter of £5.06 million.
On the day the announcement was made, within the first four hours of trading, their share price rose from 164p to 169p.
Those who would profit from this rise include traders who had gone long on the IAG shares and decided to sell at a specific point when the price rose.
Spread Betting Sectors
Spread betting on a single company can however prove temperamental. Many prefer spread betting on the price of a whole sector as an alternative.
Spread betting sectors enables traders to take a broader position on the direction of entire sectors such as banks, oil, miners and in the example below, travel and leisure.
Going Long on a Sector
In this example, we will show how traders who go long on a Travel and Leisure spread bet can profit from any rises in that sector. We will also briefly cover what losses could be incurred if it falls.
Let’s say that for the sake of this example, our spread for the Travel and Leisure Jun 12 Spread Bet is 4522/4542.
On a Monday morning, you utilize your preferred form of analysis and online trading tools and predict that the Travel and Leisure sector is to rise.
With this in mind, you go long on your Travel and Leisure spread bet, buying £5 per point at 4542. This is your buy price.
Two days later, a major travel firm announces positive full-year results; this in turn leads to a rise in the Travel and Leisure Sector.
As the the market opens on that morning, the City Index spread for Travel and Leisure is 4562/4582.
You decide to take your profits, closing your position at 4562 by selling at £5 per point. This is your sell price.
As a result, you have a winning trade. Your prediction proved correct and the Travel and Leisure sector’s price did indeed rise. Having watched the market rise, you decided to sell your trade when it had risen 20 points.
You sold at £5 per point meaning you netted a £100 profit.
However, had you been wrong and the share price of the Travel and Leisure sector had fallen by 20 points; you would have net a loss of £100.
Summary
Spread betting with City Index on a sector, offers traders a broader position on the direction of a market meaning their potential for profit and losses does not rely solely on the performance of an individual company.
As a leveraged product, spread betting comes with high risk; there is the possibility that you could incur losses greater than your initial deposit. Ensure you fully understand the risks before you start trading.
This post is brought to you by City Index.
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