Rio Tinto is a mining company headquartered in London and with a management office in Australia. This type of company is popular with the more adventurous trader, and when spread betting you need to keep a watchful eye on the market. Rio Tinto is the third-largest mining company in the world, and was first established in the 19th century, named after a mining complex in Spain. It has been through many acquisitions and mergers, and includes a range of mine products such as bauxite (from which aluminium is extracted), copper, iron ore, gold, diamonds, and even uranium.
The company is based on six continents although most of its work is in Australia and Canada at present. Because of its international presence, in addition to the volatility that you would associate with a mining operation it suffers from volatility because of currency fluctuations.
This recent daily chart shows the amount of variation in price that you may expect from a mining company. It should be viewed as a warning that you need to be experienced and prepared in order to spread bet successfully on this stock. Note particularly that there are several gap opens on the right side of the chart. These are days when the opening price is completely different from any prices on the previous day, and in fact the stock does not come back to trade on any of the previous day’s values.
The consequence of this is that you may have a stoploss, either already on the market or in your head, but you can find the price has gone far beyond this level before the market opens and you or your spread betting provider is able to close a losing trade. This is a dangerous situation which you must guard against.
Fortunately if you are spread betting, and you are concerned about this, there is a mechanism called the guaranteed stop loss by which you can be certain of the price at which a losing trade will be closed. As it is more expensive by dint of having a larger spread which you pay whether or not the stoploss is required, you need to consider carefully whether you need this additional security.
Rio Tinto Rolling Daily Spreadbet
The current price for a rolling daily spread bet on Rio Tinto is 3073.9 – 3080.1. If you look at the chart you will see it is a volatile stock, and can easily see 100 or more points change in a day. Suppose you think that the price is going to go up, you could place a long bet, buying at 3080.1, and staking say £1 per point. With a long rolling bet, you may notice an interest charge to your account each evening when the bet is rolled over, but provided you are not intending to hold the bet for weeks or months, the charge should not be significant.
If you are correct and the price goes up, you may find that you are able to close your bet and collect your winnings when the price is quoted at 3256.2 – 3262.4. To work out how much you have won, you must calculate the point difference. 3256.2 minus 3080.1 is 176.1 points. At £1 per point, your winnings would be £176.10.
Realistically, you will find that a proportion of your spread bets will lose, no matter how carefully you have analyzed the markets. Perhaps in this case the price would have gone down to 2963.7 – 2969.9, and you would have decided to close your trade and accept your losses before they got any larger. In this case, your starting price was 3080.1, as before, but your closing price was 2963.7, giving you a point loss of 116.4. The cost is £116.40.
Many traders decide to use a stop loss order, which requires your spread betting provider to close your losing bet if the price goes beyond a certain level that you set. Note that you are not guaranteed settlement at the price you set, which simply triggers a market order to close the bet. If you had used a stoploss order, you might find that your bet would have been closed at 3024.2 – 3030.4. Your losses would have been 3080.1-3024.2, or 55.9 points, costing you £55.90.
Rio Tinto Futures
As Rio Tinto is a mining company you can expect to find great volatility in its pricing. This is both an opportunity for large profits and a potential risk of losses, so you need to watch your risk exposure carefully. The current quote for the far quarter futures based spread bet is 3094.3 – 3106.3. You might stake £2.50 per point on the price going down, a short or sell bet.
First, consider that your bet becomes a winner. The price might drop to 2896.0 – 2908.0, and you could decide to collect your winnings. To work out how much you have won, you simply work out the difference between the selling price of 3094.3, and the closing price which was the buying price of 2908.0. This works out to 186.3. Multiplying by your stake, you would win £465.75.
On the other hand, you will find that many of your spread bets lose, no matter how carefully you select them, and you must be prepared to close the bet and minimize your losses should this happen. Perhaps the price went up to 3205.2 – 3216.7, and you decided that you needed to close the bet. This time the point difference is 3216.7-3094.3, which is 122.4 points. For your size of wager, you have lost £306.
It is often advisable to place a stop loss order at the time you take out your initial bet. This requires your spread betting company to close a losing bet for you, and saves you having to keep checking the market prices. It is particularly useful if you have a volatile price which moves rapidly. If you had placed a stop loss order on this bet, you might find that your losing trade was closed earlier, at 3162.7 – 3174.7. Working out your losses this time, 3174.7 less 3094.3 is 18.4 points, which would give you a loss of £201.