Spread Betting on Wolseley Shares
Wolseley PLC is an international building materials distribution company, and the largest heating and plumbing distributor in the world. It has nearly 50,000 employees in 25 countries, and is head-quartered near Reading in the UK. It was first incorporated in the 19th century under the name The Wolseley Sheep Shearing Machine Company, with the aim of developing and exploiting a sheep shearing machine that had been invented by Mr. Wolseley. The focus was in Australia, and Herbert Austin worked on developing the machine in Melbourne before he famously turned his attention to developing motorcars.
In 1960 Wolseley bought a heating company, and started in the heating and building supplies business. 1965 saw Wolseley buying a controls company, and it continued to increase its range of products. In 1982 it entered the USA markets, purchasing Ferguson Enterprises, a plumbing supply company. Up until 1984, Wolseley was manufacturing as well as distributing, but most of the manufacturing capacity was sold off then, with the residue being disposed of in recent years. Wolseley entered the European market in 1992, again by acquisition, this time of a French company.
Although still listed in the FTSE 100, Wolseley has not been performing well recently. The global economic crisis caused a sharp drop in share price, as you can see below, and Wolseley laid off 6000 people.
From a high of around 6000, Wolseley share prices are now struggling to stay above 2000, with very insipid growth in recent years. Wolseley’s operation in the US is growing, but declining markets in Europe, fuelled by the economic situation, mean that Wolseley is one of the worst-performing shares on the FTSE 100.
From a spread betting point of view, you can see that the candlesticks are relatively short, meaning that this is not a volatile stock, and therefore fairly safe for novice spread betters who may not be equipped to react quickly to large swings. Drilling down into the daily or hourly charts may produce some opportunities for profit.
Spread Betting: Wolseley Rolling Daily
Wolseley is a building supply distributor, and one of the largest in the world. With the current economic downturn building supplies, apart from those for refurbishment, are in a depressed market. If your technical analysis of recent prices suggest that the share prices will go down, you may be interested in a sell bet on this stock. The current rolling daily price is 2117.9 – 2122.1, and you might stake £1.50 per point.
If the stock price falls, and you have a winner, then you may be tempted to close the bet and take your profits when the price gets down to 1957.2 – 1961.5, for example. Your short spread bet was opened at the selling price of 2117.9, and it closed at the price of 1961.5. Taking 1961.5 away from 2117.9, your sell bet has made 156.4 points. With a stake of £1.50 per point, that is a gain of £234.60.
If you have been studying the financial markets for any time, you will know that often the price did not go in the direction you expect. Perhaps in this case the price rose, and you chose to close your spread bet and cut your losses when the quote went up to 2236.2 – 2240.6. In this case, the starting price was again 2117.9, but the price where the bet closed is 2240.6. That means that you lost 122.7 points, which for your chosen stake is £184.05.
If you had used a stop loss order, which closes your losing bet as soon as it falls by a certain amount, then you might have avoided some of this loss. Perhaps it would have closed the bet for you when the price went up to 2187.0 – 2192.3. The closing price would be 2192.3, so taking away the opening price of 2117.9 you would have lost 74.4 points. Multiplying by your stake of £1.50 per point, that would have cost you £111.60.
Wolseley Futures Based
If you consider that your spread bet might be open for a few weeks or months, it can be more economic to use a quarterly futures style bet, which does not require a daily account adjustment for a rollover. The current price for the mid-quarter on the Wolseley is 2121.2 – 2133.2. If you believe that the share price will increase, then you could place a long bet for £3.50 per point at the buying price of 2133.2.
First, consider that your bet may prove to work, and the price go up to 2257.5 – 2268.7, when you decide to close it and take your profits. Your spread bet was opened at 2133.2, and it closed at 2257.5. Taking one away from the other, you find that you have gained 124.3 points. Multiplying this by £3.50, you have won £435.05.
Secondly, consider that you may have lost with this bet. Perhaps the price went down after you placed the bet, and you closed the spread trade for a loss when it reached 2035.6 – 2046.8. You can work out how much you lost in the same way, first by calculating the number of points. 2133.2 less the closing price of 2035.6 is 97.6 points. For your chosen size of stake, that would cost you £341.60.
Many spread traders use a stop loss order placed when they take out the bet, and this tells the spread betting provider to close the bet should it reach a certain level of loss. You do not need to keep watching the market, as your spread betting company will do this for you. In this case, you might have placed a stop loss order that closed the bet for a loss when it reached 2060.5 – 2072.3. Working it out, in this case you would have lost 2133.2 minus 2060.5 points, which is 72.7 points. Your loss in this case would be £254.45.
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