Spread Bet on National Grid Shares
National Grid PLC is the company that took over from the long established Central Electricity Generating Board (CEGB) in distributing electricity around the UK, back in 1990. Originally, the company was set up by the regional electricity companies, but it went public on the stock market in 1995 and the regional companies sold off their interests. Nowadays, National Grid is not limited to the UK, but has a significant presence in the North East US, and even has a secondary listing on the New York Stock Exchange.
The energy industry is a complex one, and as you can see from the chart above the share prices have fluctuated dramatically, but not always in line with other industries. For instance, while many shares cratered during the global economic crisis in 2007 & 2008, those of National Grid merely continued to show volatility. This is a reflection of the essential nature of energy supply.
There have been many changes since the old CEGB days. In 2000, National Grid bought the New England electric company, and in 2002 the New York utility. Later that year it merged with the UK gas distribution company, Lattice Group, and although some of this was subsequently sold off it still owns nearly half of the natural gas distribution in the UK. In 2006 National Grid doubled its US operation, acquiring two natural gas companies, which made it the second largest utility in the United States.
As you can see, National Grid has been operating aggressively in its chosen field of gas distribution and electricity transmission. Headquartered in London, it has a strong US presence, serving more than 3 million customers with electricity, and the same number with natural gas. It is currently on a growth path, and presents excellent opportunities for the spread better to analyse and make a profit.
National Grid Rolling Daily
National Grid is an energy transmission company, and therefore in a market sector that has experienced a lot of interest. Its pricing has been volatile, presenting opportunities for the spread trader. The current spread betting price for a rolling daily bet is 676.8 – 678.7. That means you could place a long bet, wagering that the price will go up from 678.7. You might choose to bet £10 per point.
If your bet turns out to be a winner, and the price goes up to, say, 703.7 – 705.6, you could close your trade and collect your winnings. As it is a long bet, it closes at the selling or lower price, in this case 703.7. The number of points that you have gained is 703.7 minus 678.7, which works out to 25.0. With a wager of £10 per point, that means you have won £250.
Any time that you place a bet on the markets, you have to realize that they are impossible to predict with accuracy, and the bet may go against you. To be a successful spread better, you simply have to win more money than you lose, while accepting that you will both win and lose with your bets. Perhaps the price fell after you placed this bet, and you decided to cut your losses and close the spread trade when the price went down to 658.2 – 660.1. The point difference is 678.7-658.2, or 20.5 points, and that means you would have lost £205.
Many spread traders take care of their losses automatically by setting a stop loss order when they take out the spread bet. This closes the original bet if a certain level of loss is reached. If you had done this, you might find that the spread trade was closed when the price was 663.4 – 665.3. Although you have still lost, at least your losses were limited. You lost 678.7 less 663.4 points, which is 15.3 points, which would cost you £153.
National Grid Futures Style Spread Bet
For the spread better who wants to take a longer view on a share price, the futures style bet can work out cheaper, despite having a larger initial spread. That is because you do not incur any charges while you hold the bet open, unlike the daily bet where your account is charged each time it rolls over. The current price for a far quarter futures bet on National Grid PLC is 677.9 – 686.6. With a far quarter bet, you have between six and nine months before it expires.
If you think that the price will go down, you could place a short or sell bet for £12 per point, and the bet would go on at 677.9, the selling price. After a few weeks or months, you might find that the price had dropped to 632.7 – 640.8, and decide to cash in and collect your winnings. Your bet would close at 640.8, which is 37.1 points less than your starting price, and multiplying by £12 you find that you have won £445.20.
On the other hand, you might find that the price moves against you, and you have to decide to close your bet to cut your losses. Say the price went up to 701.3 – 708.7, your losing spread bet would close at 708.7, representing a difference of 30.8 points from your starting price. Multiplying out, that means you have lost £369.60.
Another way that your losing bet may close is if you choose to place a stop loss order. Many traders do this, as it saves watching the market all the time for adverse moves. With a stoploss order, your bet might have closed sooner at, say, 693.2 – 701.5. In this case the closing price was 701.5. You lost 701.5 less 677.9 points, which is 23.6 points, and that amounts to a loss of £283.20.
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