Spread Betting on Prudential Shares
There cannot be many people who have not heard of the Prudential Insurance company. It is a British multinational life insurance and financial services company which is headquartered in London. The largest division is however the Asian division which has over 15 million customers in 12 Asian markets. The UK division has 7 million customers and is a leading provider of pensions and insurance in the UK. Prudential also has interests in the US and in Europe.
The company was founded in 1848 as a mutual assurance company providing loans to professional and working people. In 1854 it started selling insurance through door-to-door salesmen who came to be known as the “men from the Pru”. It was listed on the London Stock Exchange in 1924, and took over Scottish Amicable in 1997.
As can be seen that from this monthly price chart, the markets have not been kind to the Prudential in recent years. There was a precipitous drop in value during the global economic collapse, one which was shared with many other companies, but since then there have been two more large retracements on a barely trending price. In fact, the highs of 2007 have still not been attained.
Financial service companies have been hit by uncertainty in the markets and with the euro. With the UK suffering a double dip recession, there may be further ups and downs to come. This matters more to the regular investor than it does to the spread better or trader, who can look for profits from prices going down as well as up. Generally financial services companies were thought to be stable, if not ponderous, investments up until the global meltdown. You can tell from the length of candles to the left of this dip, compared with the length after the crisis, that volatility has increased dramatically, and it is unlikely that this situation will change much in the foreseeable future.
Prudential Rolling Daily
The current rolling daily quotation from a spread betting provider for the Prudential is 682.8 – 684.2. If you think that the shares will increase in value in the next few weeks, you could buy a rolling daily bet for £15 per point at the price of 684.2. If you are correct, you might find that the prices go up to 756.1 – 757.5, and you would close the bet to collect your profits. Your long bet was placed at the buying price of 684.2, and it closed at the selling price of 756.1. The difference between these is 71.9 points, and this represents your gain on the transaction. As you staked £15 per point, you have therefore profited £1078.50.
There is no certainty in the financial markets, and the price might have gone down instead, after you placed your bet. Perhaps you would close your position and accept your loss when the price fell to 621.3 – 622.7. Your bet was placed at 684.2, as before, but this time it closed at 621.3. That means you lost 62.9 points, which at £15 per point would cost you £943.50.
Incidentally, if you ever get confused which one of the two prices to use, just remember when you are winning it minimizes your profit, and when you are losing it maximizes your loss. This is for the obvious reason that the spread, the difference between the two prices, is all that your spread betting provider receives for doing his job, and therefore it must be as much as possible.
Many traders like to use stop loss orders to take them out of losing positions, and if you had done that in this case you might find that your spread bet was closed for you at 635.2 – 636.6. In this case you have lost 684.2-635.2, or 49.0 points. At £15 per point, your loss would cost £735.
Prudential Futures Style Bet
Your spread betting provider is quoting 683.9 – 692.2 for Prudential shares for the far quarter. If you think that the price is going down, you could stake £10 per point at a price of 683.9, and wait to see what happens.
Should you be right, and the price goes down, you might close out your spread bet and celebrate your winnings when the price goes to 632.5 – 640.7. To work out your winnings, you take 640.7 away from 683.9. This is 43.2 points. Multiplying by £10, your profit is £432. Even though this is a rolling daily bet, which usually has a financial adjustment each evening when the bet is rolled over, as it is a short bet you should not have to suffer debits to your account.
If you got it wrong, and the price goes up as soon as you place your bet, then you have to figure out how far you want to let it ride before you close the trade and cut your losses. Say you let it go up to 715.6 – 723.2, and then you decide to close the spread bet and accept the loss. Your bet went on at 683.9, and it closed at 723.2, a loss of 39.3 points. With your £10 stake, you would have lost £393.
Many if not most traders find it hard to keep watching the markets continuously, and therefore they use stop loss orders to limit the amount of loss they may suffer with a losing bet. If you had the one on this trade, you might have found that the bet was closed at 701.6 – 709.4, which would save you some of the loss. The bet started at 683.9, and closed at 709.4, a loss of 25.5 points. For your chosen stake, this would cost you £255.
Join the discussion