Lloyds is a major UK financial institution. There have been many activities in recent years affecting its standing, the most notable of which, of course, was the global economic crisis in the 2008, as can be seen in the following monthly price chart.
You can see that the shares plummeted from a high of over 300 to the current level of 1/10 of that. But there have been many other events that have caused these shares to change. The most recent was the acquisition of HBOS in 2009. Before this, Lloyds Bank combined with TSB (Trustee Savings Bank) in 1995 to form Lloyds TSB, at that time the second-largest bank in the UK.
For its part, HBOS came out of the merger of the Halifax Building Society and the Bank of Scotland in 2001. HBOS is not an official abbreviation, but is generally accepted as standing for Halifax Bank of Scotland. The merger with Lloyds TSB in 2009 was simply the culmination of a great deal of consolidation in the industry. The group finishes up with a third of the UK mortgage market.
In October 2008, the government insisted on various companies taking some government funds to avoid any further collapse of the financial sector, and among the banks were Lloyds TSB and HBOS. It is said that Lloyds TSB would have had to take more, but for the addition of HBOS to the group. For its part, the government was left holding more than 40% of the shares of the merged company.
Later in 2009 the FSA applied a new “stress test” to the banking sector, when it became apparent that the recession was continuing, with the results that Lloyds was identified as requiring additional capital to survive. Various share rights issues and other financial tricks were implemented to achieve this in the absence of a viable wholesale lending market at that time.
From a spread betting perspective, this history gives you an insight into the trials and tribulations of the financial industry. If you can apply your strategies to take advantage of it, then you may find it a risky but profitable prospect.
Spread Betting Lloyds Banking Group Rolling Daily
If you are interested in spread betting on the financial markets, then Lloyds Banking Group may fit the bill. Unless you have been hiding under a bush, you probably realize that the financial markets have been in turmoil for a few years, and many companies, including Lloyds, are slow to recover. The current price for a rolling daily bet at IG Index is 26.394 – 26.446. This is down from 10 times as much a few years ago, and because of the low value you may need to increase the size of bet that you consider in order to make an effective profit.
Say you think that the stock is going to increase in value, and decide to place a buy bet for £20 per point. With a rolling daily bet you will be charged additional interest each night as the bet is rolled over to the next day, but this usually will not affect your profits greatly. Assume that the price goes up, and that you decide to cash in when it reaches 35.623 – 35.675. The difference in points is 35.623-26.446, which is 9.177 points. Multiplying that times your stake, you find you have won £183.54.
However, it is not always possible to anticipate which way the market will go, and the stock price may fall after you placed your bet. Say it went down to 18.351 – 18.405, and you decided that you had to close your bet to limit your losses. In this case you have lost 26.446 less 18.351, a total of 8.095 points. For your size of wager, this has cost you £161.90.
Another way in which you can limit your losses is to place a stop loss order at the same time that you take out the bet, which requires your spread betting provider to close your bet once it reaches a certain level of loss. Using this perhaps your bet would be closed at 21.632 – 21.686. You would have lost 26.446-21.632, which is 4.814 points, and for your current stake that would have cost you £96.28.
Lloyds Banking Group Futures Based Bet
With the current state of the financial industry, it may be difficult to anticipate how the markets will move in the next weeks or months, but if you think you have an idea of the Lloyds share prices you may be tempted to place a futures based bet. The current price for the far quarter is 26.440 – 26.759. Taking a bearish stance, you could stake £25 per point at the selling price of 26.440, betting that the price will fall.
First, assume that you are correct and the price does go down over the next few weeks, perhaps to a level of 18.632 – 18.857. You could close your bet and collect your winnings. Your bet went on at 26.440, and the spread bet closed at 18.857, a difference of 7.583 points. If you multiply this times your stake you find that you have won £189.57.
On the other hand, you may have anticipated incorrectly, and the price goes up after you place your bet. If this is the case, then you need to close your bet when it reaches a certain level consistent with your strategies, just so that you can prevent further losses. Say it goes up to 31.937 – 32.316, and you choose to close your spread trade and accept your loss. The bet started at 26.440 and closed at 32.316. 32.316 minus 26.440 is 5.876 points, which for your current wager costs you £146.90.
What many spread traders do is place a stop loss order when they open the trade. This means that you do not have to watch the market all the time, and your spread betting company will close your bet if the loss exceeds a certain amount. Using this, you might have found that you would exit the losing trade earlier, say at a price of 30.618 – 30.915. As before, the bet was placed at 26.440, but this time you are out of the losing spread trade at a price of 30.915. The difference is 4.475 points, which would cost you £111.87 for your bet of £25 per point.
New strategy, New Bet
Today (9th October 2012) I placed a small bet. Lloyds Banking Group buy at £20 per point. It’s gone up already and I’ve moved the stop to the buy price so at least it won’t make a loss. I may try a double up approach tomorrow depending what the market looks like. If it goes down then it will stop out and no loss (unless there’s slippage). Feeling much more comfortable with the small stake, no fear and no panic, the way it should be. Although Lloyds is fairly high at the moment, results are out fairly soon and I’m expecting a profit and a price rise (unless other factors detract from this).