Spread Betting Fresnillo
There are two reasons that you may not have heard much about Fresnillo. Firstly, it is based in Mexico with its headquarters in Mexico City, even though it has been incorporated in the UK. Secondly, the group was only incorporated 2007, and had no operations until 2008, in which year a minority stake was spun off on the London Stock Exchange and a secondary listing on the Mexican Stock Exchange.
Fresnillo is a precious metals mining company, with the majority of its income coming from silver, most of the rest from gold, and 5% from lead and zinc. In fact, Fresnillo claims to be the largest producer of silver from ore in the world, and the second largest gold miner in Mexico. It is also the first Mexican company to have a primary listing on the London Stock Exchange.
As you can see from this monthly price chart, growth has been strong for most of the time, though there was an initial dip after the IPO. Given the market that Fresnillo is in, and the continued uncertainty of the financial markets, it is not surprising that this precious metal sector company is doing well, although its recent price is significantly down from its peak of 2200. Mining company shares are affected not just by the commodity values, but also by perceptions of reserves and future discoveries.
The company has declared that it intends to produce 65 million ounces of silver per year, and half million ounces of gold per year by 2018, and has 10 times that amount in reserves. In fact, although such figures are subject to interpretation, the company believes that its total resources in the ground may be significantly more than that. The company’s operations are all based in Mexico at the moment, with three separate gold and silver mines.
How to Spread Bet on Fresnillo Shares: Rolling Daily
The mining sector is known for its volatility of price, and Fresnillo is no exception. Here is a daily price chart: –
What this chart does not show is that the price was even higher, at over 2200, just a few months previously. So for spread betting, this is a great stock provided you are experienced enough to limit your losses.
The rolling daily price is currently 1611.4 – 1614.6. If you see that the price might rise, you could take a long bet for £5 per point. The bet would go on at the buying price of 1614.6. Say the price rose to 1683.2 – 1685.4, and you closed your trade to take your profit. A long bet closes on the selling price, in this case 1683.2. That means you have gained 1683.2 less 1614.6 points, which is 68.6 points, which at £5 per point is worth £343.
You must always be prepared to lose, as you will have your share of bets that go against you. Say that the price dropped to 1561.0 – 1563.2 after you placed your bet, you might have to make the difficult decision to close the bet and accept your loss. Your bet would close at the selling price of 1561.0. That means you have lost 1614.6 minus 1561.0, which is 53.6 points. This amounts to £268 for your £5 per point wager.
Many spread traders will use a stop loss order to take care of limiting their loss, particularly if they cannot watch the market all the time. The stoploss order is placed at the same time as you open the bet, and tells your spread betting provider to close the trade once a particular level is reached. Say you had used this facility, and it meant that your trade closed at 1586.2 – 1588.4. In this case, you would have lost 1614.6 minus 1586.2, which is 28.4 points. This would limit your losses to £142.
Fresnillo Futures
Fresnillo is a Mexican mining company that specializes in gold and silver, and this has put it in a growth mode in recent times when fiat currency has been under pressure. If you want to take a midterm view on the company in your spread betting, you might be tempted to place a futures based bet for the far quarter, which is currently quoted at 1619.2 – 1631.2. The daily rolling bets have a spread of just over three points, but the spread of 12 points on this futures based bet covers interest and other charges for the length of time until expiry.
If you think that the price is going to go up, you could take out a buy bet for £3 per point at a price of 1631.2. If you’re right, you might find that the price goes up to 1783.1 – 1792.6 in a few months, and you could close your spread trade and collect your profit. The spread bet was opened at 1631.2 and closed at 1783.1 which is a gain of 151.9 points. At £3 per point you would have made £455.70.
However, particularly on bets which you intend to hold for long time, you may find that the market turns against you, and the price reaches a level where you have to close the spread bet to avoid unacceptable losses. Perhaps the price dropped to 1533.6 – 1544.2, and you decided to end the trade. You would have lost 1631.2 minus 1533.6 points, which is 97.6 points that would cost you £292.18.
If you weren’t able or interested in following the price every day, you could have taken out a stoploss order which would close the spread bet when the losses reach a certain level. Perhaps this kicked in and took you out of the market when the price dropped to 1562.6 – 1573.8. If you had done this, you would have lost 1631.2 less 1562.6, or 68.8 points. Your losses would be £206.40.
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