Spread Betting on Vedanta Resources
Vedanta is a global mining company, the largest in India and with other mining operations in Australia and Zambia. It is head-quartered in London. The company was originally founded in 1976, but was listed on the London Stock Exchange in 2003 in an IPO to raise money. It has also undertaken certain acquisitions since then diversifying its business.
Its main products are aluminium, copper, zinc, iron ore, and lead, and some of its diversified interests include developing power stations in India. As with all mining operations, you can expect the share price to be volatile, and not necessarily suitable for the novice trader. Here is a monthly price chart.
Apart from the normal fluctuations that you get with a mining company, due to the uncertainty of the business, the finding or not of resources, and the operational difficulties, it is likely that the share price has been affected to some extent by extensive criticism of Vedanta by human rights and activist groups. There have been accusations that the operations affect the lives of native tribesmen, as well as impacting important wildlife habitats in India. In addition, there have been issues with pollution for both air and water, with reports of dust from a refinery plant settling on clothes, crops and food. The river on which the plant was based was also affected.
In 2010, the Church of England in a rarely seen move decided to remove its investments from the company on ethical grounds. Amnesty International joined in condemning a proposed bauxite mining project, and many other shareholders have joined in selling their shares due to concerns.
The British and Norwegian governments have both condemned the project, and the Government of India has criticised consistent violations by the company and consider cancelling the permits. As regards spread betting, it is important to stay in touch with this news and to make sure that you play the price to move in the appropriate direction.
Spread Betting: Vedanta Resources Rolling Daily
Vedanta is a mining and refining firm, chiefly operating in India, and with some controversial practices. The current price for a rolling daily bet on it is 882.6 – 884.4. If you think that the price will continue in its decline, you might want to place a short bet on this stock, staking perhaps £4.50 per point.
Consider first the case where you are right, and the price falls after you place the bet. Perhaps when the quote reaches 736.2 – 738.0 you decide to close the spread trade and collect your winnings. As this was a short or sell bet, the opening price was 882.6 and the closing price was 738.0. Taking one away from the other, you have a difference of 144.6 points. Multiplying this by your stake you have won £650.70.
But you must also consider the case that you may be wrong, and the price might go up after you place the bet. Say the price goes up to 993.2 – 995.0, and you decide to close your bet to stop any more losses. The opening price was 882.6 as before, and this time the closing price was 995.0. The point difference of 112.4 counts against you, so you have lost 112.4 times £4.50, or £505.80.
Quite a few spread betters use the stoploss order to help them keep their losses to a minimum. The great advantage is that you do not have to be watching the market for your losing bet to close at the level you set, and while no one wants to lose, it costs you nothing to place the stop loss order when you take out the bet, and be prepared. Say it took you out of the bet when the price went up to 946.3 – 948.1. This time you would have lost 948.1 minus 882.6, which is 65.5 points, a loss of £294.75.
Vedanta Resources Futures Style
The quarterly futures style bet may be more suitable for you than the daily bet, if you anticipate holding a spread bet open for a few weeks or months. The current price for the far quarter is 883.8 – 894.5. You can bet on the price to go up by placing a long bet for, say, £6.25 per point at the buying price of 894.5.
Perhaps the stock increases in price, putting you in a winning position, and you decide to close your spread bet and collect your winnings when the quote goes up to 1022.1 – 1031.7. You opened the bet at a price of 894.5, and closed it at a price of 1022.1. 1022.1 minus 894.5 is 127.6 points. As you staked £6.25 per point, your winning bet is worth £797.50.
On the other hand, the stock might go down in price after you placed your bet, and you may be faced with having to close your bet for a loss, simply to avoid losing any more. Even though it is a futures style bet, you can close it at any time when you want to. Perhaps the price went down to 796.8 – 805.6 before the trade was closed. The bet was opened at 894.5, and it closed at the selling price of 796.8. The difference between these is 97.7 points, and multiplying it by £6.25 you find you have lost £610.62.
One problem with keeping your losses small is that you have to watch where the market is going, to see if you need to close your bet. Many traders use a stop loss order which takes care of this automatically, closing the bet when it reaches a certain price. Perhaps in this case a stoploss order would have closed your bet at 828.6 – 839.4. In this case you would have lost 894.5 less 828.6, or 65.9 points. Multiplying by your stake, your losses would be £411.87.
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