GlaxoSmithKline plc, or GSK as it is commonly titled, is a major pharmaceutical company head-quartered in London. While you might think that “big pharma” is not volatile enough for spread betting, you need to realize that even the largest of them can be significantly affected by events. GSK counts as the world’s fourth largest pharmaceutical company, and was formed in 2000 by the merger of Glaxo Wellcome and SmithKline Beecham. These companies had previously been formed by combining Burroughs Wellcome and Glaxo in 1995, and SmithKline Beckman and Beecham’s in 1989.
But the underlying companies have been established far longer than this, with Beecham’s formed in 1843, Smith’s in 1830, Burroughs Wellcome in 1880, and Glaxo in 1908 as a baby food manufacturer.
In July 2012, the USA courts agreed to a settlement by GSK because of fraudulent practices related to the promotion of antidepressants, and suppression of safety data on a diabetes drug. The settlement was $3 billion, the largest in US history, and included more than $1 billion awarded to four whistleblowers who brought the problems to the attention of the authorities.
Despite that, you can see that the share price was not dramatically affected. You will also note that the candlesticks on the weekly price chart above are fairly lengthy, which is evidence that the price is volatile, and you must use best practices to minimize your exposure when you are spread trading.
In addition to being listed on the London Stock Exchange, on which is the fifth-largest company, there is a secondary listing on the New York Stock Exchange.
The stock price of pharmaceutical companies tends to react to healthcare news. Drugs are such a big business nowadays, that news that a new prescription has been approved for sale or denied usually has a massive effect. Because of its size, GSK is less affected than smaller companies as it has so many different products, but you can still find price impacts that result from approvals and licensing.
Glaxo Smith Kline Rolling Daily
Pharmaceutical companies can have a volatile pricing in their stocks, so you need to make sure that you do not over leverage your funds, and that you are quick to exit a losing situation. The current price for GSK on a rolling daily spreadbet is 1440.6 – 1443.4. If you think price is going up, you could place a long spread bet at 1443.4, staking say £5 per point.
Consider first the case when you are correct, and the price increases after you place your bet. The price might go up to 1623.2 – 1626.0, and you could decide to close your bet and collect your winnings. Your spread betting provider will work it out for you, but your profit is easy to figure. The bet opened at 1443.4, and closed at 1623.2, netting you 179.8 points. With a stake of £5 per point, you have won £899. As this is a rolling bet, you may have had some charges to your account in the evening when the bet is rolled over, but these are usually not large.
Now consider that you may have lost on this bet. Perhaps the price dropped to 1308.2 – 1311.0, and you decided that you needed to accept your loss and close the bet. In this case you have lost 1443.4 minus 1308.2 points, which is 135.2 points. For your current stake, that would amount to £676.
If you do not have much time to watch the markets, so you could be caught out by not seeing the falling price until later, you may want to use a stop loss order to close a losing bet quickly. Your spread betting provider will close the bet for you if it reaches a level you set. With one of these, you might have found the losing bet would be closed when the price was 1356.9 – 1359.7, for a loss of 1443.4 less 1356.9 points. This 86.5 points loss would cost you £432.50, and thus contains your losses a little better.
Glaxo Smith Kline Futures
For a longer-term trade, you may consider using a futures based spreadbet, which will have an expiry date some months away and no account charges in the interim. A typical bet on GSK is currently priced at 1443.3 – 1454.9. Deciding in this case that the pharmaceutical company may lose money, you can place a short bet at 1443.3, staking £2.50 per point for example.
Should you be correct, you may find that you are able to close the bet and cash in when the price drops to 1267.9 – 1278.3. To work out how much you have won, you simply have to calculate the point difference, bearing in mind that this is short bet and thus started at the selling price and closed at the buying price. The selling price was 1443.3, and the buying price at the close was 1278.3. Working this out, you have gained 165 points which for your chosen stake is £412.50.
However, many times you will find that the bet does not go in the direction you want, and that you need to close the bet and accept your loss before it escalates. Perhaps the price went up to 1572.1 – 1582.3, and you decided that you needed to cut your losses and close the trade. The point loss is 1582.3 minus 1443.3, or 139.0 points, and that would cost you £347.50.
Many traders and spread betters use the stop loss order to protect them from excess losses. Even if they are not watching the market, their spread betting provider has to close any losing bet when it reaches the level they instruct. If you had placed a stop loss order on this bet, you might find that the losing trade would be closed for you at 1536.2 – 1545.6, for a loss of 1545.6 less 1443.3 points, or 102.3 points. The cost this time would be £255.75.