The Royal Bank of Scotland Group is a banking and insurance group which was decimated by the economic crisis of 2008. It has a substantial UK government investment. The group comprises several different banks, including the Royal Bank of Scotland, National Westminster Bank, and Ulster bank, and still issues banknotes in Scotland and Northern Ireland. At one time it was the largest bank in the world, but now is just the 32nd largest company on the London Stock Exchange. The recent daily price chart looks like this.
As prices are quoted in pennies, you can see that the shares have a very low value. When you realize that they peaked over 600 in 2007, you can see how far the value has fallen. The troubles continue. In 2008 the government acquired a 57% stake in the bank by underwriting a rights issue offering of 58% which was barely taken up. This stake increased to 70% when the shares were subsequently converted from preference shares to ordinary shares, and the government’s share of the bank now stands at around 84%. Meanwhile RBS has been trying to improve its viability by selling off various assets, reducing its commitments, and shedding many thousands of jobs.
It is well-known that the financial sector, which some say created the financial crisis using derivatives too freely, has duly suffered greatly. The many events that have happened to the RBS group and its associates are a clear example, but the government feels compelled to prevent a total financial collapse of such a major organization with which much of society has dealings. Fortunately for the spread better, even if the downward trend continues it presents great opportunities for making a profit. Government intervention may interfere with technical analysis, causing share prices to vary out of political manoeuvrings rather than from known data history. As with all spread betting, the trader is advised to be careful to protect his capital.
Spread Betting Royal Bank of Scotland Rolling Daily
The current price for the Royal Bank of Scotland rolling daily spread bet is 20.599 – 20.641. It is important when spread betting to determine your total exposure or risk, and in this case you will note that the price of the shares is low, and therefore you can afford to make a larger bet than usual. If you think that the shares will continue to fall in value, you may be tempted to place a short or sell spread bet for £25 per point at 20.599.
Consider first that you may be correct, and that the price falls further down to 16.432 – 16.474. You could close your bet and collect your winnings, and as it is a short bet it closes at the higher price, in this case 16.474. Incidentally it is easy to remember which prices to use – if you are winning, it is the prices that minimize your profit, and if you are losing it is the prices that maximize your loss. In each case, the extra money that you pay/lose is the “commission” that your spread betting broker is entitled to for handling your account.
You opened your sell bet at 20.599, and closed it at 16.474. The difference is 4.125 points, which multiplied by your stake of £25 per point means you have won £103.12.
If you are wrong, and the price goes up, you might have to close the spread trade and accept your losses when it reaches 23.861 – 23.902. The price has changed from 20.599 to 23.902, a difference of 3.303 points. That amounts to a loss of £82.57.
Finally, you might consider placing a stoploss order when you take out your bet, as many spread traders do. This may close your losing position earlier for you, saving you money. Say it closed the position when the price reached 22.426 – 22.468. Your losses now are from 20.599 up to 22.468, or 1.869 points. At your chosen stake this is £46.72.
Royal Bank of Scotland Futures Bet
For spread bets that last anything over a few weeks, it often works out cheaper to use futures style bets, even though the spread between the buying and selling prices is usually larger than for a daily bet. The current quote for the far quarter bet on the Royal Bank of Scotland is 20.630 – 20.879. If you decide that the stock price is going up, you might place a long bet at £30 per point.
If you are correct, the price may go up to 24.316 – 24.650, and you could close your bet and work out your winnings. Your long bet was placed at a starting price of 20.879, and it closed at a price of 24.316. Taking one away from the other, you have made a total of 3.437 points. With a bet of £30 per point, that amounts to winnings of £103.11.
If you are not correct, the price could go down and you would be left with a losing bet. Say the price went down to 17.932 – 18.150, and you closed the bet to cut your losses. The starting price was 20.879, as before, and this time you closed the bet at 17.932. 20.879 minus 17.932 is 2.947 points. Multiplying by your stake, you have lost £88.41.
Many spread betters use a stop loss order to stop their less successful trades from running away. The stoploss order tells your broker to close your losing bet at a certain level which you specify, should it go there. Perhaps in this case a stoploss order would have closed your bet at 18.673 – 18.882. Even though you tell the broker what price you want on the stoploss order, usually the price you receive is not guaranteed, but simply the next available trading price after the order is activated.
The starting price was 20.879, and the closing price was 18.673. That means you lost 2.206 points, which for your chosen stake amounts to £66.18.