Spread Betting On Economic Collapse

[Guest mattsta1964]

Well! I've crossed the rubicon into uncharted territory

I just walked out of Halifax with my pockets stuffed with my savings......

What to do next I wonder??

I guess it's sensible to spread it around a bit so I'm thinking

Index linked national saving certs

Swiss Francs

Yen

Yuan

Gold

Any other suggestions???

I think Gold is a safe bet in the medium term but the lack of intervention by the central banks to cap gold prices is a bit of a worry. It can be read both ways if you see what i mean............

[fribblet]

Done a lot of thinking about this since I spread bet for a living.

Not convinced by gold, silver, or any other commodities - too much speculative investment in all of them for my liking. Cash isn't going to do partuarally well in a high inflation environment (especially if the inflation is understated) Equities wont have much fun generally, and most major curruncies will be fluctuating wildly and so become a guessing game. The Yuan is clearly undervalued, but may get hit very hard in a global economic downturn - so would stay away from that also.

Going short of markets doesn't seem to be the answer either, since unless you time the downturn to perfection, you're going to be losing money hand over fist as the markets rally before the crash. Its also worth noting that in a high inflation environment, markets tend to rise - making it much harder to make money by going short. Put options are also generally overpriced.

So yeah, doesn't leave much. The closest thing I've found to a dead cert is the Yen against Sterling. In my opinion Sterling is horribly overvalued, and the Yen horribly undervalued due to the carry trade (and obviously the low interest rates that fuel the carry trade) If economically things start going wrong, the Yen will soar against the pound. (Just look at GBP vs JPY during the credit crunch)

All my opinion though. But my money is in Yen/Sterling, and a couple of small oil companies. Good luck whatever you choose.

[tenant447]

... but the lack of intervention by the central banks to cap gold prices is a bit of a worry. It can be read both ways if you see what i mean............

No, I must be thick. Please explain further.

I thought that CBs had been selling gold in recent months(?)

Have they stopped and, if so, why is that a worry? Do you mean that the "authorities" are giving up?

What are the two ways in which this might be read?

Thanks.

[tenant447]

But my money is in Yen/Sterling.

What is your preferred method of benefitting from currency moves of fewer Yen per pound?

Just buy and hold Yen in a foreign currency account?

Spread bet on indices? Which one(s)?

.....?

Thanks.

[YoungFTB]

I'm also interested in this, my money is still in the bank but I'm not keeping it there for much longer

[fribblet]

What is your preferred method of benefitting from currency moves of fewer Yen per pound?

Just buy and hold Yen in a foreign currency account?

Spread bet on indices? Which one(s)?

.....?

Thanks.

Personally spread betting, on the far quarter price. (March 08 atm)

[Bear Monger]

Done a lot of thinking about this since I spread bet for a living.

fribblet - would you mind expanding on this a little. Which companies do you use? What other kind of things do you bet on and over what periods or is it just currencies? Have you been doing it long? Are you making much money? Do you do lots of technical analysis?

I spreadbet for a couple of months on ig index. I made about 5k buying and selling the Dow and oil (my info mainly came from watching Bloomberg and gut instinct/luck) but then blew it all on a big bet on the Dow to break even. I backed off after that. I pretty much broke all of the basic rules when I bet which is why I got wiped out.

I still believe the economy will tank in the UK and US and was thinking of buying some options. Any thoughts?

Can you explain your Yen/GBP bet in detail as your logic seems sound and I'd like to work the figures through. Is it an option you have bought? Please explain in simple terms as I haven't used options or dealt currencies before

Edited for clarity

Edited November 17, 2007 by Bear Monger

[fribblet]

fribblet - would you mind expanding on this a little. Which companies do you use? What other kind of things do you bet on and over what periods or is it just currencies? Have you been doing it long? Are you making much money? Do you do lots of technical analysis?

I spreadbet for a couple of months on ig index. I made about 5k buying and selling the Dow and oil (my info mainly came from watching Bloomberg and gut instinct/luck) but then blew it all on a big bet on the Dow to break even. I backed off after that. I pretty much broke all of the basic rules when I bet which is why I got wiped out.

I still believe the economy will tank in the UK and US and was thinking of buying some options. Any thoughts?

Can you explain your Yen/GBP bet in detail as your logic seems sound and I'd like to work the figures through. Is it an option you have bought? Please explain in simple terms as I haven't used options or dealt currencies before

Edited for clarity

Hi Bear Monger, apologises taking so long to reply!

Sorry to hear about the big bet going wrong that must have hurt. Very similar story to my Mum betting on the FTSE. It sure is easy to get carried away when you're on a role.

I also use IG for my trading. Am firmly against virtually all forms of technical analysis, and simply work on the idea of buying low and selling high, combined with strong fundemental reasons why the odds are in your favour for the trade to work. Thus I make very few trades in total, but those I hold are medium to long term bets that I'm confident with.

I agree the world economy will tank, but sadly in my opinion it will be very hard to make a profit out of this ever since the Fed chose inflation in place of depression by cutting rates (hello stagflation). Markets tend to go up in high inflation environments, but the economy tanking will create downwards pressure. End result = highly volatile and highly risky. Clearly any options in this environment should be, and are, horribly expensive, and along with the upwards force of inflation are not a good bet IMO.

However, this volatility badly hurts the carry trade (selling Yen at low interest rates and buying any asset in sight) as a lot of these geared positions get hit with margin calls and losses, and so during any financial market wobble people surge back into the Yen to pay back their debts. This makes the value of the Yen go up, putting those who havn't got out of the carry trade in a horrible position, getting crucified by the exchange rates. This carry trade has started unwinding, but has a long way to go yet to get the Yen away from it's artificially low value.

As for Sterling, don't think there's any reason to explain why it's going to go down. Been one of the strongest currencies over the last few years, time to sell high.

Thus I feel selling GBP/JPY is the best trade that I can see, you need only sterling to go down or the Yen to go up to make money. Sadly though, over the last week or so the market has FINALLY figured out that UK interest rates are going to fall (probably in december, got bets on that too) so GBP/JPY has taken a hit lately. I'll be looking to increase my position if we see a bounce to around 230 or so again though. This is my only ever currancy trade, havn't seen any other fundamentally worthwhile ones.

All very much IMO of course though, don't blame me if it doesn't work! Am still learning myself! (Not that you ever stop learning in this game)

www.dailyreckoning.com (.co.uk) may be worth looking at if you're interested, gives some very good analysis about the current state of the global economic conditions, and an entertaining read.

Hope this helps

Fribblet

Edited November 25, 2007 by fribblet

[Bear Monger]

fribblet - thanks for that. It was very enlightening and useful to people just starting out like myself.

I was wondering if you could answer a couple more questions for me on your currency bets. If they are too intrusive, please forgive me and I understand if you want to keep the details private.

Essentially, I wanted to know how you would protect yourself from the volatility in case the bet went against you. Do you have large stop losses? If you do, are you not worried in case you got it wrong and you lose a lot. If you don't, then are you not worried about getting stopped out from the swings.

Secondly, I was wondering what kind of cash you have staked on these positions? Spreadbetting is very new to me and as I said, I just lost 5k. You sound like you're in a similar amateur position to me and I was wondering what kind of stakes you are playing with and what your record has been like so far? I would be interested to learn how big your stops are (I take it you have a guaranteed account) and whether you are in the money on the positions you have taken so far for that March 08 bet. Again, if this is too intrusive, please tell me where to go!

I tried to PM you but apparently your account does not accept messages (you need to ask for an upgrade in status I think).

Thanks and best of luck.

[Bingley Bloke]

Am firmly against virtually all forms of technical analysis, and simply work on the idea of buying low and selling high...

How do you establish what constitutes 'high' and 'low' if you are against TA?

[fribblet]

Now time to sell the Yen neat little trade that was.

[DrGUID]

Stick the money back in the bank. Bear markets are notorious for destroying the wealth of both bulls and bears alike.

Be very careful of spread betting - if you've not traded before it's a good way to lose money.

I'm of the opinion that the yen is overvalued and pound undervalued, so it proves there's never a sure thing!

[Number79]

Stick the money back in the bank. Bear markets are notorious for destroying the wealth of both bulls and bears alike.

Be very careful of spread betting - if you've not traded before it's a good way to lose money.

I'm of the opinion that the yen is overvalued and pound undervalued, so it proves there's never a sure thing!

yep, got me a spread betting account recently, manage to lose £500 in two days. Played it cautiously and bet small so it took another three weeks to lose another £500. Options seem to be the way ahead but I can't understand them.

can anyone explain options please? I know that a call is going long and a put is short but don't understand why there are so many levels at which to buy. If gold is at say 934 then i can still buy a call from 930 or 932 but what is the point because it doesn't make any money unless gold is rising over 934 anyway. I can only do daily options on spot gold, is that normal?

[nuts]

yep, got me a spread betting account recently, manage to lose £500 in two days. Played it cautiously and bet small so it took another three weeks to lose another £500. Options seem to be the way ahead but I can't understand them.

can anyone explain options please? I know that a call is going long and a put is short but don't understand why there are so many levels at which to buy. If gold is at say 934 then i can still buy a call from 930 or 932 but what is the point because it doesn't make any money unless gold is rising over 934 anyway. I can only do daily options on spot gold, is that normal?

Do you mean covered warrants ? paying for a right (but not an obligation) to buy or sell a given instrument at a defined price (known as the strike price).

It is quite complex because in addition to the spread, you also need to understand that there is a time element in the price.

I have dabbled in these and they seem pretty attractive in the sense that you can only lose your initial stake (no more) and you seem to be less at the mercy of the spread betting company ...and you can't get stopped out in times of extreme volatility. That said, the profits on them are subject to CGT.

DYOR. Lots of stuff on the web explaining options / warrants etc.

[fribblet]

Stick the money back in the bank. Bear markets are notorious for destroying the wealth of both bulls and bears alike.

Be very careful of spread betting - if you've not traded before it's a good way to lose money.

I'm of the opinion that the yen is overvalued and pound undervalued, so it proves there's never a sure thing!

I agree entirely! But it you look at the dates for the initial posts, back in Nov 07 the opposite was true. Now the carry trade has been truely unwound and the Yen has been horribly artificially inflated, reality should catch up and take note of the horrible horrible economic mess Japan is in. Stirling has fallen too far, and Yen is nastily overpriced.

Clearly before dabbling in these markets you should do your own research and make your own mind up though! It's never easy money.

Edited April 6, 2009 by fribblet