How to Spread Bet RBS Shares: Royal Bank of Scotland Group
You may be interested in spread betting on the shares of RBS, the Royal Bank of Scotland Group. Banks have been having a turbulent couple of years, and if you can stay on top of it, there are many opportunities for profit from spread trading. Here’s a recent chart with weekly prices: –
You can see that there is sign of a recovery from the devastating drop, and this chart shows only the most recent price movement, not the action during 2008, when the global economic crisis first appeared. RBS was trading around 500, and dropped to below 20.
It has been a rough ride for banks, and opinion changes over time. Despite the fact that the taxpayer has lost a great deal of money by investing in RBS, the current outlook is for these shares to increase in value. The Royal Bank of Scotland Group was shaken up by the global crisis, and has promised extensive revisions, despite the fact that the bankers are still taking large bonuses.
As if this wasn’t enough the situation keeps getting more complicated and recently (2012) most of the major UK banks were hit by the PPI compensation payments and other mis-selling scandals. RBS itself had to set aside £1.7 billion for the contingency; which amounts are being funded from the bank’s bottom line which will further delay their bounce back to profitability.
Either way, as far as the spread better is concerned it is simply a matter of reading the signs and betting in the right direction. One advantage of spread betting is that, unlike investing, you do not have to commit only to shares that you think will increase in value, but can equally well profit from the downside. RBS is a large institution, and is unlikely to go away given the support of the British taxpayer, but that does not mean that the share prices will continue to rise.
For example, in the above chart with Bollinger Bands, you can see how the bands narrowed in May 2011, usually a sign that there is a large move to come. Effectively, the bands are choking down on the price, which responds by breaking out in one direction or another. In this case, obviously the price plummeted hard, even breaking clear through the lower band which is an unusual event. Usually prices tend to track along the band rather than going through so forcefully.
That said, to the right you can see a further narrowing of the bands and some strong bullish candles which have pushed the price to the upper limit. In this situation it is common to see the price continue to move up as the band itself moves upwards. As the chart shows only weekly prices, it would not be wise to make a bet purely on this basis, but you should look at the daily and possibly hourly charts. The main concern for a continuing bullish trend based on this chart is that the candlesticks are extremely short and doji-like, which can signify another reversal. Basically it indicates indecision in the market, and you need to obtain further evidence from technical indicators to have an idea of whether sentiment is changing.
Betting on the future of banking could be a very profitable practice, although it is necessary to have strong discipline and realistic stop loss positions to take full advantage of the price fluctuations without losing too much.
Preamble to RBS Downfall
Certainly something to be learned from RBS. It really did have a fine operating record until 2008. Reading the first posts on the BB from 2005 brought back a familiar feeling – watching the first half of the movie Titanic, before anyone realises they’re doomed. Why would they, on an apparently unsinkable ship?
Makes for great reading – much of the bullish analysis is genuinely well informed, I can honestly say I might’ve been inclined to be bullish on RBS based on the data at the time.
A decent record of earnings and dividend growth, prospects of benefiting from global capital expansion in emerging markets and at home. No immediate reason, by 2005, to worry about mortgage/lending/housing/banking crises. And you’re two years into a nice bull market, taking advantage of the typically cyclical banking sector. Importantly – all of this growth potential for “free” – a price suggesting that EPS growth can be zero and you’re still on a good valuation to buy (P/E of 9).
So I’m wondering – if I was a stock picker in 2005, would I have added RBS or BARC to my long term holdings? And maybe more importantly, what would I have done in 2007? 2008? 2009? At the time I was holding diversified unit trusts – but if I was as active then as I am now, I wonder what I would have done.
Spread Betting on the Royal Bank of Scotland Group
If you have decided that the excitement of the fluctuations in bank share prices is for you, then you may be looking forward to spread betting on the Royal Bank of Scotland Group shares. Because of the previous volatility, you should make sure that you have a sound trading plan and a strategy to keep to a minimum the potential losses. The current spread betting price is 29.700 – 29.800, and with futures style bets at a higher level, it appears that the market is cautiously optimistic.
If you believe that the upward trend in pricing will continue, and want to go long on the shares, you could choose to bet £250 per point at the buying price of 29.800. Given the previous levels of RBS shares, you may find that the price increases significantly, but the volatility associated with banking at the moment means that you should be careful with your betting.
Say that the price goes up, and you choose to exit your bet when it reaches 31.134 – 31.234. The difference between your bet opening and closing prices is 31.134-29.800, bearing in mind that a long bet opened on the higher quoted price and closes on the lower. This represents a gain of 1.334 points. Because you bet £250 per point, you therefore won £333.50.
On the other hand, if the price had gone down you would need to close the bet before your losses mounted up. Say it went to 29.512 – 29.612, and you closed the trade. The bet opened at 29.800, and closed at 29.512. That means you lost 0.288, or 28.8 points, which is £72.
You might have decided on looking at the chart and the technical analysis, that the price of RBS was going to go down, at least in the near future. In that case, you could have placed a short or sell bet on the shares at the price of 29.700. Say you staked £150 per point, the price went to 27.930 – 28.030, and you closed your bet.
In this case your starting price was 29.700, and the bet closed at 28.030. The difference between these prices is 1.670 points. At your chosen stake, you have won £250.50 (1.67 times £150).
One of the secrets of successful and profitable betting or trading on the financial markets is that you must minimize your losses. As soon as you realize that the bet is not going to go in the direction you want, you must have the discipline to close it and accept that you lost some money, rather than leave it open in the hope that it will turn around. Say that the price went up after you placed your short bet, you might choose to close your bet when the price had reached 30.305 – 30.405.
Your bet went on at 29.700, and closed at 30.405. The difference between these is 0.705 points. Therefore you have lost 0.705 times £150, which is £105.75.
Join the discussion