Shell is a multinational oil and gas company, which divides itself between the UK and Holland – its proper name is Royal Dutch Shell PLC. The energy sector is a favourite for spread betting, given the sometimes significant market moves in response to international news. Shell’s headquarters are in The Hague, but the registered office is in London. It is the largest company on the FTSE with a market capitalization of £140 billion, and also ranks as the world’s second largest company.
The name Shell comes from its origins in the 19th century. The founder’s father created an import business in London, selling seashells, in 1833 and much later his son realized that there was a market to export lamp oil from the area where shells were collected. Shell Transport and Trading Company was founded in 1897 to carry on the operation. Royal Dutch Shell came from a merger of the Shell Company and the Royal Dutch Petroleum Company in 1907.
Shell has expanded into every area of the energy industry, including not only the oil and gas side but also renewable energy including solar, wind power, and biofuels. It operates in 90 countries and on the retail side has 44,000 service stations.
Energy companies are typically volatile, and as you can see from the weekly chart above Royal Dutch Shell is no exception. This is almost inevitable, given the state of energy supply in the world, where any interruption to normal flow, whether by accident or by intent such as the OPEC countries’ actions, creates a crisis. This makes it potentially profitable to spread trade, though it requires that you pay close attention to the signals and signs of technical analysis in order that your bet has a good chance of success.
There are two types of shares, “A” and “B”, but you need not let this confuse you for spread betting. They both track fairly closely, and the difference is that one is based in Holland, in order to take care of tax implications for investors.
Shell Rolling Daily
The current spread betting price for Royal Dutch Shell rolling daily is 2254.2 – 2258.8. The energy industry is fairly volatile, so you might expect this number to move about 100 points per week, although individual news items may cause larger shifts. If you have studied the technicals, and decide that the price is going up, you may want to place a long bet (which goes on at the buying price of 2258.8) for £1.50 per point.
Supposing you are correct, you might choose to close this bet and collect your winnings when the quote goes up to 2436.5 – 2440.2. You can work out how much you profited by multiplying together the points you gained and your stake. Because this was a daily rolling bet, you may have been charged a little each evening to your account when the bet was rolled over, but this is not usually large.
The number of points you gained is from 2258.8 to 2436.5, which is a total of 177.7. At £1.50 per point, that means you have won £266.55.
On the other hand, you may have lost on this bet, with the price going down after you placed it, and then you would be faced with closing your bet for a loss quickly, before you lost any more. Perhaps you would close it when you saw that the price had gone down to 2114.6 – 2119.2. Your starting price was 2258.8, as before, and the bet closed at 2114.6 for a loss of 144.2 points. This would have cost you £216.30.
You might have considered placing a stoploss order on this bet, as many traders do. If you do not have time to watch the market, the stoploss order tells your spread betting company to close the bet before it goes beyond a certain level of loss. With one of these, the bet might have closed earlier at 2153.1 – 2157.7, for example, giving you a loss of 2258.8 minus 2153.1 points, or 105.7 points. This would have kept your loss down to £158.55.
If you want to spread trade over a few weeks or months, you may consider placing a bet on a futures based contract, as this does not incur any payments while you hold the bet open. The current quote for Royal Dutch Shell B for the far quarter, with an expiration date about nine months away, is 2267.3 – 2279.3. Note that with a futures based bet, you can close it at any time up to the expiry, and do not have to wait until that time comes.
Let’s assume that you believe the price will increase, and you choose to place a bet for £2 per point. The starting price for a long bet will be 2279.3. If you are correct, and the price goes up, you might choose to close the bet and collect your profit if the quote reaches 2536.9 – 2547.2. The closing price would be the first (selling) price of 2536.9, for a difference in points of 257.6 from the starting price. Multiplying by your stake, you would win £515.20.
But if your bet turns out to be a loser, and the price goes down, at some stage you will need to close the bet and accept your losses for fear that they would become too great if you did not. Perhaps you would close the bet when the price goes down to 2056.1 – 2068.0. The starting price was 2279.3, and the closing price was 2056.1. The difference in points is 2279.3 minus 2056.1, which is 223.2 points. For your chosen stake, this would amount to £446.40 lost.
Many spread traders decide to use the stoploss order to limit their losses, which closes the bet even if they do not have time to watch the market. You may find that if you had used one of these, the bet would have been closed earlier, at 2123.7 – 2134.2. This would reduce your losses, as 2279.3 less 2123.7 is 155.6 points, which would cost you £311.20.