Spread Betting Gulf Keystone Petroleum
With the rising price of oil, it is a popular idea to invest in anything to do with the commodity including oil companies like Gulf Keystone Petroleum (GKP:AIM). This is not always the best policy, but fortunately with spread betting whether the shares are set to increase in value or dive we can bet on the result.
As you know from the name, Gulf Keystone Petroleum is in the oil business. It’s actually in the riskier side of the business, the exploration side, where a major oil strike can spell fortunes or money can be thrown away without a result. It is listed on the Alternative Investment Market (AIM) of the London Stock Exchange, which is a branch of the exchange that is used by smaller and generally more risky companies. These are companies that do not have to comply with the full restrictions of the main market, and may well be start-ups, although some of the companies on the main market have re-listed on AIM so that they are not required to meet all the regulations.
GKP’s stated focus is to find the under-developed gas and oil fields that can be exploited for a profit. It has a Bermudan headquarters, and was listed in 2004. After several years of little happening, it has recently come to life with oil finds in Iraq and Kurdistan turning the oil explorer from penny stock into a major player. As is common in this market sector, it is still operating at a loss, in the expectation of future income but the company is planning to develop the potentially great Shaikan oil development project in the Kurdistan region of northern Iraq. This company is one of the few success stories on Aim with Gulf Keystone Petroleum (GKP:AIM) having risen from 13p to 425p between the summer of 2009 and February 2012.
The market believes that it has a future, as can be seen from the rising prices. The cessation of some hostilities in the region has undoubtedly been in its favour although there are still pending disputes between Baghdad and the Kurdistan Regional Government as regards oil exports.
For the adventurous trader, this is a good prospect. With such a minimal market, compared to the giant companies, you can expect to see quick and dramatic price moves in response to rumour and speculation, as well as solid news. Share trading is still somewhat low volume, with individual trades being made at disparate prices, but for spread betting this risk is taken by the provider, and you are only concerned with what the spread betting provider is quoting to you.
What you must do is use a solid trading plan, based on a sound strategy. If you have no experience in creating a trading plan, you might find some examples online, but you have to realize that in the end it is no-one’s responsibility but your own. If you study technical analysis, you will develop ideas that you can use and test against the price moves to see which work, and which work best.
Technical analysis teaches you how to anticipate the short term moves of the market, which are the moves that you want to foresee so that you can make money. It is not perfect, as the market will sometimes behave erratically, but the key to successful betting in the financial markets is to make as much as you can with your winning bets, and keep your losses from losing bets small. That way, even if you have “average” performance, and only anticipate the right direction half of the time, you can still finish up with a profit.
Spread Betting on Gulf Keystone Petroleum
Gulf Keystone Petroleum (GKP:AIM) is perhaps one of the riskier oil and gas companies to trade but this hasn’t prevented it from being a retail investor favourite. Let’s take an example. The current price for a daily rolling spread bet on Gulf Keystone Petroleum is 374.06 – 377.94, and it is likely that when you read this it will be significantly different. Just two weeks ago, it was around 280, and three weeks before that it was less than 200. As you can see, this stock is volatile, and you should be sure that your trading strategy allows for this and protects you from any large loss.
If you believe that the price is going up shortly, then you will want to place a buy bet on this stock. The buy bet will be at a price of 377.94, and could be for £10 per point. If the stock continues on its current path, the quote next week could be as high as 430.25 – 434.13, at which point you may decide to sell and collect your winnings. Here is how much that is worth: –
- Your long spread bet went on at 374.06
- You closed your spreadbet at 430.25
- The difference in price is 430.25 – 374.06
- This is 56.19 pence or points
- At £10 per point, you would have won £561.90
But this stock is very volatile, and you might also have found that it sank as soon as you placed the bet. If you were quick, you might have closed your bet when it was 363.57 – 367.45. In this case: –
- Your long spreadbet went on at 374.06
- You closed your bet at 363.57
- The difference in price is 374.06 – 363.57
- This is 10.49 pence or points
- At £10 per point, you would lose £104.90
Consider also that you can make money when the stock goes down. That works like this: –
- You place a sell (or short) bet for £5 per point at 374.06
- Say the price goes down to 352.54 – 356.45
- You close the spreadbet at 356.45
- The difference is 374.06 – 356.45
- A total of 17.61 points
- At £5 per point, your spread bet is worth £88.05
One of the keys to making money in the financial markets, whether you are trading stocks or spread betting, is to keep your losing positions small. It is difficult to close a bet that has just started by going in the wrong direction, as it goes against your decision to place it in the first instance, but unless you exercise discipline you will find that the losses mount up. In this case, perhaps the stock unexpectedly goes up to 381.58 – 385.46, and you have to close your trade to cut your losses. Here is what you lost: –
- You placed a sell (or short) bet for £5 per point at 374.06
- You decided that you had to close the bet when the price went to 381.58 – 385.46
- You close the bet at the higher number of 385.46 (as this was a short bet)
- The difference is 385.46 – 374.06
- A total of 11.40 points
- At £5 per point, your spreadbet cost you £57
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