Spread Betting Associated British Foods
Associated British Foods [ABF.L] is a long-established worldwide company that employs nearly 100,000 people in 44 countries. It aims to be involved in most of the world’s food markets, and breaks those down into the sugar, agricultural, retail, grocery, and ingredients categories. Over the years there have been a number of acquisitions and selloffs to more closely align the business with these aims.
The company started in 1935, when it was called Food Investments Limited, which shortly became Allied Bakeries Limited. It became Associated British Foods in 1960, but apart from the name there have been many changes since that time. For instance, it bought Fine Fare supermarkets and sold them again, bought British Sugar, sold its Irish supermarket interests to Tesco, and most recently was investigated for tax avoidance of about £10 million per year. When this was brought to light there was a protest sit-in at Fortnum & Mason’s.
The foods-to-fashion giant owns many household names, including Ovaltine, Ryvita, Mazola, Jordans, Twinings, and the European retail chain Primark. As you can see from this monthly price chart, it has enjoyed relatively steady growth for several years, with the exception of a dip during the European financial crisis.
In the food industry you can expect fairly steady performance amongst the leaders. It is competitive, thus companies that do not keep up with the others will falter, but it is true that everyone needs food, particularly the staples such as the markets that Associated British Foods are in, so while luxury goods can be deeply impacted by a recession the food industry as a whole is not. However, the tax avoidance scheme was discovered and publicized in March 2011, and there is a noticeable price glitch a few months later as details unfolded. The effects of this should now have worked through the price.
Associated British Foods Rolling Daily
Associated British Foods is a large company supplying staples around the world, and is on a steady growth path owning a budget fashion chain, as well as a portfolio of sugar, grocery, ingredients and agriculture businesses. The current price for a rolling daily spread bet is 1203.8 – 1206.2. The daily range is fairly small, typically up to about 20 points, with 30 points the largest normally expected. If you think that the price will be going down, you can place a short or sell bet at 1203.8 for, say, £10 per point.
If you are right, perhaps the price will drop to 1152.6 – 1155.0 and you can collect your winnings. To work out how much you won, you first figure out how many points you gained. Your sell bet was placed at 1203.8, and it closed at the buying price of 1155.0. That works out to a difference of 48.8 points. With a stake of £10 per point, you have won £488.
As with all trading, spread betting is not guaranteed to win. If the price went against you and increased, you might decide to close your bet and accept your losses when it reached 1246.7 – 1248.9. For this case, your bet started at 1203.8 and closed at 1248.9, giving a point difference of 45.1 against you. This equates to a loss of £451.
Whenever you place a spread bet, you are encouraged to also put on a stoploss order, so the broker will close your bet once it runs against you by the amount you choose. Perhaps you should have decided to place a stop loss order 30 points away from your opening price. It may not close your bet at exactly 30 points away, but it should be fairly close. Say the price ran against you and the stoploss order closed your trade when the price was 1234.6 – 1237.0. The point difference now is 1237.0-1203.8, which is 33.2 points and amounts to a loss of £332.
Associated British Foods Futures Bet
The international food and grocery group, Associated British Foods, generally shows a steady growth. The current futures based spread betting quote for the far quarter is 1208.9 – 1220.9. If you expect the price to continue going upwards you could place a long or buy spread bet at 1220.9 for £12.50 per point.
If you are correct, and the price goes up over the next few months, you might find that you can close the bet when it reaches 1302.1 – 1314.1. You have won the difference between the opening price and the closing price. The spread trade opened at 1220.9, and closed at the selling price of 1302.1, a difference of 81.2 points. As you bet £12.50 per point, you have won £1015.
Suppose on the other hand that the price immediately drops after you place your spread bet. One of the secrets of winning at spread betting is not to lose too much when the price goes against you, so you could close your spread bet when the price gets to 1151.3 – 1163.3. Even though you have a futures based spread bet, you can close it at any time you want to. In this case you have lost 1220.9 less 1151.3, which is 69.6 points. Unfortunately, this amounts to £870 that you have lost.
One way to try and control your losses is to use stop loss orders, which tells your spread betting provider to close your bet if the price reaches a certain level against you. Stop losses are there to be used to guard against things not working out to plan. And with minimum trade sizes starting at £1 per point, punters don’t need to take on massive levels of risk. For example, a 1p move in a share price is a one-point move from a spread betting point of view. So if someone thought Associated British Foods, Primark’s owner, was going to carry on its strong upward trend, a 10% stop loss based on the current price would be 165 points away. At £1 per point, this means a risk of £165, so it is possible to keep risk down and free up capital for other opportunities.
Suppose your stop loss order closed your spreadbet earlier, when it reached 1177.6 – 1189.6. When you set the level of your stop loss order, you must be careful that it allows for normal fluctuations in the price, so that you are not prematurely closed out of a potentially winning spread bet. In this case your long bet opened at 1220.9, and closed when the price dropped to 1177.6. That is a loss of 43.3 points, which costs you £541.25.
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