Spread Betting BAE Systems
BAE Systems is an international defence, security, and aerospace company head-quartered in London. It is the second-largest military contractor in the world based on revenue. It employs nearly 100,000 people, and has annual revenues of approximately $25 billion.
Because of all the mergers that have happened to form the current company, BAE Systems can rightly claim to be the successor of many well-known companies. The Supermarine Spitfire for example, as Supermarine was bought by Vickers-Armstrong, which was bought by British Aircraft Corporation, which with Hawker Siddeley formed British Aerospace, which merged with Marconi in 1999 to form BAE Systems. Other notable products from the multitude of companies that have come together as BAE Systems include the deHavilland Comet, which was the world’s first commercial jet airliner, the Harrier jump jet, and the supersonic Concorde which it partnered with Aérospatiale to produce.
The current involvement of BAE Systems includes the Queen Elizabeth class of aircraft carriers, the F 35 Lightning, the Eurofighter Typhoon, and the Astute-class submarine. Given the nature of the defence industry, there are doubtless many other products in development or production which are less well publicized.
However, part of the defence industry is dealing with foreign countries who have a need for your goods, and this often means playing by their rules in order to make the sale. Hence there has been a lot of criticism and accusation of corrupt practices, for example when selling to Saudi Arabia, and BAE Systems has in the past been fined by the Serious Fraud Office, and in the United States by the US Department of Justice.
Nonetheless, defence seems to be a booming industry and it seems that BAE Systems is well-established and able to fulfil many contracts. When spread betting on the stock, you must watch out for government pronouncements from around the world which impact the sales. Cautiously, you might avoid having a spread bet open if announcements are expected, or conversely you could take a gamble on their outcome.
BAE Systems Rolling Daily Spreadbet
Given the state of the world, you might think that BAE Systems, a major defence contractor, would only have increases in its share value. However, currently the price is in a down-trend, so suppose that you decide to place a rolling daily spread bet in line with this trend, selling or shorting for £12 per point. Your spread betting company is currently quoting 293.31 – 293.89, so your spreadbet is placed at 293.31, the selling price.
Suppose you are correct, and the price falls. You might decide to take your profits when it reaches 271.32 – 271.90. Your short bet would close at the buying price of 271.90. That means that you have gained 293.31-271.90 points, which is 21.41 points. At £12 per point you finish up with a gain of £256.92 on the bet. As it is a rolling daily bet, you may have seen some adjustments to your account each evening when the bet is rolled over, but as it is a short bet the adjustments should be to your credit.
On the other hand, the price might have reversed its current trend and started upwards after you placed your bet. Say you watched it for a little while, but decided to take your losses when it reached 311.12 – 311.70. In this case you have lost 311.70 less 293.31, which is 18.39 points. That amounts to a loss of £220.68.
If you had placed a stop loss when you opened the bet, you might have kept your losses down. Say you set a stoploss order 10 points away from your opening price. If the price had gone upwards, you would have been taken out of your bet by your spread betting broker when the price reached, say, 303.59 – 304.17. It is not exactly 10 points away, because the stoploss order becomes a market order when triggered, and closes the bet at the market price.
This case your bet was closed at 304.17, and if you take away the opening price of 293.31 you find you have lost 10.86 points on this spread trade. Multiplying by your stake, this amounts to £130.32.
BAE Systems Futures Based Bet
Most spread betting providers will allow you to place a futures based bet for the next three quarters of the year. For BAE Systems, the current quote for the mid term quarter is 293.95 – 296.31. Note that this price does not express your broker’s opinion of where the price is headed, but simply the market’s view as shown in the single stock futures price.
Suppose you think that the stock will rise in price in the next few months, you could place a spread bet for £10 per point at a price of 296.31. Although this is a futures based bet, and does not have to expire until the quarter after the next one, you are at liberty to close it at any time, whether to take a profit or to minimize your losses. If it works out, perhaps you would close it when the price reaches 321.63 – 323.78.
Your bet was placed at 296.31, and closed at 321.63. Taking the difference between these, you find you have won 25.32 points, or £253.20.
You must also consider the losing case, where the price drops after you place your long spread bet. Perhaps it falls to 274.65 – 276.96, and you decide to cut your losses and close the spread trade. In this case you have lost 296.31 less 274.65, which is 21.66 points. For your chosen stake, you have lost £216.60.
It is good advice to set a stoploss order with every spreadbet that you place. This will automatically close your bet when the losses become higher than an amount you set, which saves you having to keep an eye on the price all the time. If your stop loss order was about 10 points away, you might find that your trade was closed when the quote was 281.63 – 284.02. This time you would have lost 296.31 less 281.63 points. Multiplying this amount, 14.68, times your stake per point gives you a total loss of £146.80.
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