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Market Commentary 23rd October 2007

Capital Spreads MD Simon Dehham contributes a daily market commentary

Markets have now neatly reversed the falls of Monday and in some cases are significantly higher than the closing levels just before the weekend.

Far Eastern market recovered their poise after the nervy monday session and funds continue to pile into Chinese, Hong Kong and Indian equities with the Hang Seng managing a 1000 (!!) point rally and the Bombay Sensex up almost 700.Both well over 3% up on the day.

The FTSE is opening some 45 points to the good on the off at just over 6500 (6505-6506 as I write) and has bounced strongly off the support mentioned yesterday at 6400. As mentioned the 6400 and 6500 levels have proved to be both something of supports and resistances and punters who went home long last night have been taking profits on the open this morning. Yesterday started off on the bloody side for our clients but as the day wore on longs who held their nerve were rewarded. If we stay above 6500 fro a while this morning there is a good possibility of buyers coming back again but punters are understandably twitchy about any direction just now.

The Americans did what they normally do when the Europeans make a big bear move on their markets..trade in the other direction. US market do not mind going down but they always seem to hate it when the movement occurs outside of US trading times. If all a trader ever did was wait for the few times a year when the Dow was called more than 100 pips lower in UK morning sessions and then buy I feel that their win to loss ration would be very sweet indeed!! The US markets are called higher again this morning at 13593-13597 inthe Dow and 1508.9-1509.3 for the S&P (above 1500 once more) and with credit worries 'apparently' rising again equity markets might seem to be the second safest place to be (cash being number one! )

I say credit markets are 'apparently' being squeezed because the newspapers are full of it this morning. Unfortunately for all these column inches the Short Sterling and Euribor contracts do not bear this out as the front month december contract is pretty much where it has been for the last month. With the big US banks trying to set up this rinky dink vehicle for distressed debt we may be seeing some talking down of asset values so that they can be picked up at truly sparkling levels.

Debenhams have produced a profit increase of 13% on like for like sales down by 5% and margins down by 0.9%(?!?) They have acheived this by the adition of almost 800,000 sq ft of new floor space. The shares are now well above the lows of September of around 84p and are sunning themselves at 108.1-109.2 up 5.5p this morning. Our clients have been short this stock for a very long time and seem no closer to cutting out and after the last year who can blame them. With problems still on the horizon this is still a specualtive recovery play.

S&N's defensive language is hardly likely to win friends and influence people. Calling a partner (albeit one who wants to take you over) 'incompetent' and 'dishonourable' takes financial briefings to a new level. The Stock is still stuck around the 750 level at 764.1-765.4 as investors ponder the chances of a competitor approach. The big stock holders will not want to miss out on a potential windfall so the S&N board must make its best efforts to drive up the stock, I would be surprised if being gratuitously rude is going to acheive this effect.

On the FX front cable traded virtually the entire range, mentioned many time over the past few weeks (2.0250 to 2.0500), in one day. We have now confirmed this range quite dramatically and our clients were happy to sit on the shorts built up on Friday and Monday morning. We are now attempting to emulate the price action on the 4th, 9th, 12th and 17th of this month as the charts show an almost perfect pattern for four days. If this time is the same we may see the markets climb to 2.0430/50 if this bounce is merely a mirage then we still have to get back below strong support at 2.0300 and (of course) 2.0250 before the bears came out to play.

As feared yesterday Gold ran into a bit of a problem as weak late comming bulls, tempted by talk of $1000 an oz, were driven out of positions as the price dived by, at one point, $20. Oddly enough it fell neatly down to the support level mentioned yesterday at 745 before finding buyers once more and recovering to the mid 750's. Who says you never read anything useful! We are now struggling to get above the 756 resistance level and a failure to clear this point may bring sellers out again. Punters are (as ever) still long but seemingly not so confident as in recent times


 

Market commentary 22nd October 2007

Capital Spreads MD Simon Dehham contributes a daily market commentary

Forgive me for being slightly smug but my comment on Friday morning wondering why the markets had not fallen that week on the frankly very grim US data was bourne out by the trading activity. A fall of almost 400 points in the Dow is being followed up with an 80 plus point drop this morning as confidence drains away.

The curse of October seems to be striking again and investors can hardly claim they were not warned, coupled with the rather extreme recovery move after the August sell off punters have had an almost perfect trading environment.

The FTSE is being called to open over 100 points lower this morning at around 6420-2621 which is still pretty close to the end of September closing levels of 6466 whereas the Dow and S&P are some 450 and 40 points respectively off the same days closing prices. The 6400 to 6500 range is very congested and, in what has been an exciting year to date, both levels have proved to be something of supports and resistances. With punters now trying to buy on the opening low quotes from 6414 upwards we may find that this view is taken by the main markets when they open at 08.00. Whilst the US economy is showing some strange dislocations (housing slowing/outflows of capital/weak currency against robust consumer/low unemployment/strong exports) the UK may find itself in a rather more difficult situation. The manufacturing sector has had a very good year to date but let us be honest and remember how small it now is compared to the wider economy. A slow down in the financial sector will harm the UK more than any other major nation on earth and the continued gyrations (whilst good for creating interest for spread betting companies!) do not lend themselves to good long term investment advertisements.

Fortunately for the reporting end of the market there are no major corporate anouncements this morning as it always seems a little unfair when companies have to give out interims or trading statements when the rest of the market is going bananas.

Some press over the weekend about a company called S&N being taken over (but frankly any brewer who can inflict John Smiths Smooth on an unsuspecting public and call it Bitter, who cares). There is a possiblity that there will be a referal to the Monopolies commision but this would be more of a defence play by the company itself, as the three companies involved are actaully 3,4 and 5 in europe which would not normally go to the commision, and would certainly not be in the best interests of shareholders. As mentioned here on Friday, the shares have stuck around the 750p level since the announcement and although there was a bit of buying right at the close which moved the price up to 767p, as shorts covered positions before the weekend (nobody wants to be the wrong way round if a rival bid gets announced on a Saturday!!), it is likely that we will continue to shadow this area until some more definate news is known.

Looking at the FX markets this morning clients could be forgiven for thinking that nothing much had changed but this would obscure some prett volatile markets over in Japan. gbp/jpy has had a 300 point trading range already and whilst we have bounced from 232.20 back up to the current 234.30 the short term chart looks like grim reading. Not surprisingly the bounce point of 232.20 was the kick off level for the recent pound/yen rally and the five day sell off has now just reversed the whole move.Punters will be watching the 230 to 235 trading range which constrained us for most of September. Momentum would seem to favour the downside at the moment and our clients are being cautious about getting long.

Dollar/yen managed to get as low as 113.20 before finding strong buyers and as we can see from recent lows in August and September this general level is proving something of a buying opportunity for traders. The usd/yen cross has now fallen from around 118.00 to the current 113.92-113.94 six straight down days. The perception that the US administration is shepparding a dollar devaluation is gaining ground and the announcement last week of net $80 bln sales of US assets for August has had its predictable effect on the currency. If the cross can close above 114.15 this evening then puntersmay take the view that this is just another move in the oscillation between 113.00 and 117.50 that has been going on since the August sell off. A close below 113.40 would be taken very badly and may trigger some aggressive selling.

Oddly enough Gold has not taken advantage of all the equity market chaos and dollar weakness to move higher once more. It is tempting to guess that we may be hitting the edge of the envelope at the moment. The move above 750 last week has not had the sort of follow through that many may have expected and the longer we hang around at the current levels the greater the probability of a reaction sell off. This morning sees the price down a few bucks at 761.0-761.6 for the rolling contract and we are seeing some client selling of long positions. As mentioned over the past six months our clients have been religiously long of gold (aside from the odd day or two) but we are seeing a more general closing of positions in the last three or four days. Punters are not particularly bearish (there is littel short building going on) but there seems to be a feeling of "let someone else have the next move". There is minor support at 756 and 745 and resistance at 765 and 770 (the high)

Financial Spread Betting

Traditional spread betting at firms like Capital Spreads involves an intermediary making a two way price based on their perceived likelihood of the price at which this market will ultimately settle or finish at. There will be a price at which you can buy the market and a price at which you can sell, and the difference in these two prices is the spread. This is where the market maker who sets this price will make their money.

For example if the quote on the Daily Footsie is 4740-4750 this means you are able to sell at 4740 if you think the market will finish at a lower price, or buy at 4750 if you think the market will finish higher at the end of the day. If punter A was to sell at 4740 and then in the next phone call punter B buys at 4750 the intermediary (market maker) will have made 10 units. On the footsie a one point move represents £10, so for buying and selling one contract the profit between 4740 and 4750 would represent £100. The number of contracts traded is decided by the punter.

The punter who has bought or sold the contract then has three choices.
1. He watches the market move nicely in his favour and exits the trade in the same fashion to realise his profit.
2. The market has moved the wrong way for the punter and faced with a loss he chooses to exit the position to prevent this loss getting any bigger.
3. He leaves his position to ‘expire’ in which case his profit or loss will be governed by the price at which the market closes.

Even though there is no commission to pay, the intermediary has effectively taken money from you because of the spread he has made. In the example given you the punter can buy at 50 or sell at 40 but the true price of the Footsie Index at that point will be 4745 so the intermediary’s profit is ‘built in’ to his quote.

Other financial betting platforms such as Betfair have no profit ‘built in’ as you are betting directly against other punters and taking or giving odds on the likelihood of the market moving to certain levels. This way you will only pay commission if you strike a winning bet. Another advantage of odds betting is that your potential profit or loss is locked in and known at the time the bet is struck. Profits on spread betting can be large, but losses do not have a set limit and are only capped once the position has been exited.

Both these methods of trading financial markets have advantages and disadvantages and both can be great fun and potentially rewarding, but punters need to be fully aware of the risks involved before they start. Check out betfair now and make a winning financial bet.

Betfair FTSE Betting

Financial odds betting is now available to the general public with the advent of betfair.com, the on-line betting exchange. For those inclined to speculate on shorter term moves on the FTSE there is no longer a need for all the red tape, wealth checks and large deposits that you associate with the setting up of an account with a stockbroker. With Betfair there are a wide variety of UK financial bets, and you can have these bets in real time with fantastic odds that are changing by the second.

Despite the wealth of new and old methods of gambling on the movements of the stock market via the FTSE Index, never have we been able to get FTSE odds betting so readily and with the ability to choose whether you bet with £2 or in thousands.

Within UK financial betting on Betfair the most popular bet is to forecast whether the Index will close the day at a higher or lower level than it was the previous day. So once the FTSE Index closes at 4.30 you can then start to bet on the next day’s close right through to 4.30 the following day. Initially this ought to be an even money bet but as the New York markets continue to trade from 4.30 to 9.00pm UK time, their performance, and then the performance of Far East markets, will start to influence the FTSE odds. Quite often both a higher close and a lower close can be heavily odds on in the course of those 24 hours and this opens up great potential to lock in guaranteed profits for all those sharp minds that want to enjoy a UK financial bet.

Also, within UK financial betting on Betfair you can vary the time frame of the up/down bet with FTSE odds available on a midday close, weekly close and the very popular hourly bet, where you forecast whether the FTSE will finish higher or lower than it was the previous hour. Other markets available include forecasting the range in which the FTSE will finish the day, the size of the daily change and an interest rate bet.

Each month on UK financial betting the interest rate Bet is on the change that will result from the policy meeting in the UK, Europe, Australia and the US. Whilst no change will usually be a strong odds on chance, when potential changes are rumoured the interest rate bet can be a useful tool for hedgers and speculators alike.

The UK financial betting market has its home at Betfair with prices live in-play at all times, where you can choose to offer your own odds or take the odds available, to a stake of your choice. Whether you are a using a UK financial bet as a professional, or to hedge a position in another market, or you are purely trying your luck as you wait for the start of the afternoon racing, Betfair can offer you new and unique opportunities for making money.

Click here to go to Betfair now

How do I open a spread betting account?

To begin trading today with Capital Spreads please complete their online application form. This can be found as a link on the home page (Open an Account). This should take no more than 10 minutes. You will be asked to select the type of currency you wish to trade in, so be sure that you select the currency you require. They will then conduct an electronic check to confirm your identity and address.

If you are a UK resident, and we are unable to confirm that you reside at the address you have produced in your application form they will require additional information in the form of an ORIGINAL, recent bank statement or utility bill. If you are not a UK resident, they will require proof of your address AND a copy of your passport/driving license. You can fax these documents to capital spreads on the capital spreads fax number +44 (0)20 7456 7013. You also need to post them them to capital spreads as well at your earliest convenience.

If you would prefer to receive an application pack and a copy of our brochure, please complete the form. This can be found as a link on the home page (Open an Account).

Why do Investors using Spread Betting Firms?

Spread betting appeals to a wide variety of individuals who want to take advantage of the versatility and great value that spread betting can offer.

Experienced investors use spread betting as an additional trading tool as the spreads offered rival the prices available in the real market. Alternatively, many investors use spread betting to hedge their existing share portfolio. For example, if you have some shares, which are decreasing in value in the short-term, you could “Sell” the value of the share using a sell bet with Capital Spreads and possibly make a profit to counter-balance the decreasing value of your shares.

You do not need to be an experienced investor to spread bet, but you do need to research the products that you wish to trade and be aware of the risks associated with spread betting. Many individuals new to spread betting use technical analysis to guide their investment decision.

One of the problems for spread betting companies is the word ‘betting’ as this gives a false impression to the marketplace. Spread Betting is in fact a highly adaptable trading tool.  With a Capital Spreads account you can trade in many financial products using just one currency – we offer prices on UK, European & US shares, World Indices, Commodities, Foreign Exchange, Bonds and STIRS. You can bet on the Cash, the Future or on Rolling Daily products.

Rolling Daily Bets provide a cost-effective solution for short-medium term trading. These bets do not expire at the end of the day but are automatically ‘rolled over’ to the next trading day. The spread on these bets is very tight, increasing the opportunity of profitable trading. The bets never expire – they continue until either you trade out of them, or your stop level is hit.

Spreadbetting: Advantages and Disadvantages of Financial Spread Betting

What are the advantages of spread-betting?

Bull or Bear
One of the most obvious advantages of spread betting is the unique opportunity to go short of (or sell) a stock or share. You can therefore experience the benefit of either a rising or falling market!

No Commission or Fees
Because firms like Capital Spreads are not stockbrokers, they do not charge commission or fees. The only “fee” is the spread they charge on the prices that we quote.

Gearing
Spread betting also allows you to trade in sizes smaller than those usually available in the underlying market. Similarly, you may also benefit from an opportunity to trade in larger positions than are normally permitted in the underlying market, without depositing large sums of money.

Tax Free Profits
All spread betting profits are recognised as the winnings of a bet, and are therefore free of Capital Gains and Income Tax (correct at time of writing for UK tax residents).

Limit your Risk
Spread Betting is a high-risk activity, but some firms such as Capital Spreads  offer an automated stop-loss facility which encourages you to understand and control your risk. Although you must be aware that stop losses are not guaranteed.

Your stop-loss is set according to the funds available on your account up to a maximum computer-generated level. You can amend your stop-loss to suit your needs. They also hold an additional 20% of your funds to allow for slippage or a market gap.

Risks
Although you can make substantial profits from spread betting, if the markets move against your bet, your loses can also be substantial and although spread betting firms have a policy of attempting to limit client losses on bets by applying an automatic stop–loss to each bet you make, these stops are not guaranteed. As a consequence, if a market gaps, you may lose more than your initial deposit.

Click here to go to capitalspread.com

Why should I spread bet?

Spread betting allows you to bet on a huge variety of financial products in one place and in one currency.  At capitalspreads for example, you make your bets in one of 3 currencies (Sterling, US Dollars or Euros), which means you do not have to bother with costly exchange rates and can, in general, trade in your own currency.

Spread bets are margined trading products, which means you need only deposit a small percentage of the full value of your trade leaving your excess capital to continue working hard elsewhere. For example, a £1 bet on a share is the equivalent of buying (or selling) 100 real shares. On most shares the minimum Initial Margin Requirement (deposit) is 3-5% of the underlying value of the shares which means that you can take a bet in a share with as little as 1/30th of the money required to buy the actual real shares from a stock broker.

Also, because firms like Capital Spreads are not stockbroker, they do not charge commission or fees. They make our profit from the spread they add to the underlying market prices, which result in their quotes. Plus, don’t forget, that - at the time of writing - UK residents benefit further because your profits do not incur Capital Gains and Income Tax.

Whilst spread betting offers many benefits, it is important to note that it carries a high level of risk to your capital, so you should only bet with money you can afford to lose.  Whilst firms like capitalspreads offer compulsory stop-losses, it is possible for you to lose more than your initial deposit. 

Although you can make substantial profits from spread betting, if the markets move against your bet, your loses can also be substantial and although Capital Spreads has a policy of attempting to limit client losses on bets by applying an automatic stop–loss to each bet you make, these stops are not guaranteed. As a consequence, if a market gaps, you may lose more than your initial deposit.

Click here to read more about spread betting at capitalspreads

Open a Demo Spread Betting Account

You can open a demo spread betting account at capitalspread.com

If you are new to spread betting, we highly recommend that you sign up for their online Demo Account.

The Demo Account mirrors our live trading system in all respects, other than the requirement for depositing funds! 

Used in conjunction with their online Beginners Guide you can really get to grips with the concept of Spread Betting or familiarise yourself with our trading platform before you begin Live Trading.

Click here to open a demo financial spread betting account