For those old enough to remember it, BP stands for British Petroleum, but it changed its name a few years ago to use just the initials, and its marketing has now included the phrase “Beyond Petroleum”, signifying its desire to expand in the energy field, and in other countries. The energy industry is popular when spread betting, because of its responsive pricing. BP is the third-largest energy company in the world, and has interests in many different fields including biofuels, solar power, wind power, etc.
BP’s work includes everything from initial exploration and production through shipping, refining and final distribution of its products. Most recently, it is infamous for its involvement in the Deepwater Horizon oil spill in the Gulf of Mexico, which despite current optimism still casts echoes across the Gulf. In fact, Transocean, a US company registered in landlocked Switzerland for tax reasons, was the contractor for the well, but BP’s lack of supervision and Transocean’s legal filing to limit its liability meant that BP was left with the cleanup bill.
The effect on BP’s share price was dramatic and swift, as can be seen from the plunging red bars two thirds the way across this monthly price chart.
Disasters aside, you can see from this chart that the energy industry is a volatile one, and thus very suitable for spread betting provided you do your homework. Oil prices are of course a large driver of share value, and most futures commodity traders will tell you that the changing prices are not always predictable. Many think that the inevitable demand increases during winter for heating oil, and during summer for extended travel, will govern the market, but there are so many other influences, including the political stability of Middle Eastern countries which still provide a major proportion of crude oil, that these rules of thumb cannot be relied upon.
As with all spread betting, you should be careful to limit your exposure to losses in case your bet is unsuccessful, and you must use technical analysis to try and put the odds of winning on your side.
BP Rolling Daily Spreadbet
The current selling price for spread betting on BP stock is 442.96, and the buying price is 443.92. You may decide that BP shares are overvalued and due for a correction, and therefore want to take a short position to profit from this. Suppose you stake £7 per point on a daily rolling bet. As this is a sell bet, you may receive an adjustment into your account each night, although with current low rates of interest you may not notice it.
Say you are correct, and the price goes down. You could decide to close your bet and collect your winnings when the quote is 365.21 – 366.12. To work out how much you have won, you simply have to calculate the difference between the opening and closing prices. Your bet went on at the selling price of 442.96, and closed at the buying (higher) price of 366.12, for a difference of 76.78 points. Multiplying this by your stake you find that you have won £537.46.
If your bet had failed, and the price went up you would have to make a decision to close the trade and accept your losses, before they became too large. Perhaps you would do so when the quote went up to 496.02 – 497.04. Closing at 497.04, you have lost a total of 54.08 points, and that works out to £378.56 for your chosen stake.
Many traders like to protect their account from large losses by using a stoploss order, which instructs your spread betting provider to close your trade if and once a certain level of loss is reached. Using one of these, you might find that your bet was closed for you when the quote was 482.62 – 483.66. In this case you would have lost 483.66 minus 442.96, which is 40.7 points, and that would cost you £284.90.
Taking a slightly longer view than before on the price of BP shares, and with the expectation that your bet could last for several weeks or months, you may choose to place a futures based bet on BP, and the current quote on IG Index is 444.82 – 450.29 for the far quarter. Suppose you expect an increase in price, you could place a long bet at 450.29 at a price of £3.50 per point.
In the course of time, but before the expiry date, the price goes up to 536.23 – 540.92, and you decide to collect your winnings as you believe that is as high as it is going at present. Your opening price was 450.29, and the bet closed at 536.23. This means you have made a total of 85.94 points. As you staked £3.50 per point, you have profited £300.79.
However, even if your bet on higher prices would be correct in the longer-term, you may find that you are forced to close for a loss if the price dips first, simply so that you do not risk losing more. Perhaps the level went down to 376.55 – 381.43, and you decided that you could not afford to stay in the bet any longer. Your opening price was 450.29, and the bet closed at 376.55, which gives you a loss of 73.74 points. For your size of wager, this would amount to £258.09.
Many traders will take care of closing the bet for a loss by using a stop loss order, which you place with your spread betting provider when you take out your initial bet. This will automatically close your bet if it goes the wrong way and reaches a certain level of loss which you set. Using this, you might find that your bet was closed for you when the price went down to 421.63 – 427.26. With a stoploss order, you would have lost 450.29 minus 421.63 points, which works out to 28.66 points and would cost you £100.31.