Xstrata plc is an international mining company with a registered office in London, and its headquarters in Switzerland. It mines a variety of natural resources, including the coal, copper, zinc, nickel, and others. It is the world’s largest exporter of thermal coal. It has operations in 19 countries, including Africa, Asia, Australasia, Europe, and North and South America. It was listed on the London Stock Exchange in 2002, and has a secondary listing in Switzerland.
It started off in 1926 as an infrastructure and electricity company working in Latin America, but in 1990 it diversified into mining, and started selling off its other businesses. In 2003 it bought an Australian mining company called MIM Holdings which virtually doubled the size of Xstrata. This and other acquisitions mean that it has rapidly expanded to become a major mining company.
It has recently announced that it will be merging with Glencore. Glencore is a commodities company with a very close relationship. Glencore International owns about one third of Xstrata, and went public less than a year ago in a move presumably calculated to facilitate the merger.
This monthly price chart shows the volatility that you might expect of a mining company. There have been various political and legislative activities surrounding Xstrata’s operations, including allegations of pollution and of upsetting local relations in areas where it operates. Although the performance has been unexciting since the slump in the global economic crisis, you can expect that the proposed merger and its impact will have marked effects on the share price.
Another factor that will affect the share price is the offer that Glencore brings to the table. The futures of both companies will now be bound together, and much will depend on how the trading public regards the value of the merger, and the relative values placed by the negotiators on each company. At this time, this is one share that should probably be avoided by the novice spread trader, who may not react very quickly or well to volatile conditions.
Spread Betting Xstrata Rolling Daily
The current price quoted for a rolling daily spreadbet on Xstrata is 893.2 – 895.0. This means that if you think the price of Xstrata is going up you can place a long bet at 895.0, or if you think is going down your sell bet would be at 893.2. Say you believe that Xstrata it is going up, you could stake £8 per point.
Perhaps you are correct, and the price goes up to 1023.2 – 1025.0. If you chose to close your spread trade then, the exit price for the long bet would be 1023.2. As you started at 895.0, you take the difference, 1023.2 minus 895, which is 128.2 points, and multiply it by your stake. This works out to £1025.60, and is the amount you would have won.
On the other hand, your bet may be a loser, and after you placed it the price may go down to 783.5 – 785.3. In this case, your exit price would be 783.5, and your starting price was 895.0. The number of points you have lost is 895.0 less 783.5, which is 111.5. Multiplying this by £8, you have lost a total of £892.
Many spread betters like to use a stop loss order. This is a provisional order that you place at the same time as opening your bet, that tells your spread betting provider to close your bet if it loses by a certain amount. It saves you having to watch the market all the time, or perhaps miss closing the bet and cutting your losses at the right time. If you had used one of these on this bet, you might find that the stop loss order would close at 831.3 – 833.1. Your bet was opened at the price of 895.0, and it closed at a price of 831.3. 895.0 minus 831.3 is 63.7 points. For your chosen stake, this would keep your losses down to £509.60.
Xstrata Futures Based Spread Bet
Xstrata is in the throes of a merger at the time of writing. This probably means that there will be some significant changes in stock price in the next few months. For many people, this would mean that it is less risky to stay away from the stock, but if you feel you have some sort of inside track on how it will work out, then you could place a quarterly futures based spread bet on the stock, say a long bet for £7.50 per point, and the futures based bet would allow you a few weeks or months for the price to stabilize at a new value. The current price for the far quarter is 894.3 – 905.1.
Consider first the case where you are correct, and the stock increases in price over the next few months. You might find that you are able to close the bet when the quote is 1024.2 – 1033.5. In this case, the starting price was at 905.1, and the closing price was 1024.2. The difference between these, 119.1 points, is how much your long bet gained. Multiplying this by your stake of £7.50 per point, you have won £893.25.
Secondly, your bet might have been in the wrong direction, and you could find that you are facing the need to close your spread bet for a loss when the quote is 805.7 – 815.2. Once again, the starting price was 905.1, but this time the bet closed at 805.7, a difference of 99.4 points. That would have cost you £745.50.
Finally, you could have used a stoploss order to take you out of a losing bet more quickly, and automatically. If you had placed a stop loss order when you opened the bet, you might find that your provider closed the bet for you when the quote was 843.2 – 852.3. With a starting price of 905.1, and a closing price of 843.2, in this case you have lost 61.9 points. Multiplying by your stake, that amounts to £464.25.