Investors bet on 30% falls by 2011

beingjdc

The funding costs aren't all that big in the context of a sold house. You have £150k, the cost of margin is just over £10k - you might not want to guarantee the full value anyway, as if you do buy in at a still high price, you'll own the higher-priced asset, if you see what I mean.

The spread is sometimes huge, sometimes not (2010 was at 136-138 this morning) but since it's peer-to-peer, you can put in an order at the good end of the spread for you, and see if someone else takes it.

The cost of winning is 5%, not huge. Admittedly the transaction costs are high if your bet comes out at almost evens, but you can hedge around that itself too!

kennyboy66_2

beingjdc wrote: »

The cost of winning is 5%, not huge. Admittedly the transaction costs are high if your bet comes out at almost evens, but you can hedge around that itself too!

You are ignoring the quarterly commission charge - which in their own example is £25 per quarter on £100 staked. To give yourself full exposure you would need to stake £1000 per point (you would have to take a worse price to get this much on). That would be £250 per quarter.
On their own example, on an 18 month contract with house prices moving £11k in the charges work out at about 18% !!!!!

If you think this is a great idea, I suggest you go ahead and let us know what happens in 2 years time.

nobblyned

Financing costs are included in the price/spread on long dated spreadbets, so already accounted for, no quarterly costs.

There would however be costs associated with the derivatives.

The main problem would be cash, say you sold your house for 150k, leaving you equity of say 20k, and bought the spread at 130. Say prices fell to 110, you lose the 20k in cash on the bet, but you can buy back the asset at 110 making you a net winner (minus costs).....but, hang on, whoops, unfortunately you can't get a mortgage because you don't have a deposit any more.....bummer.

GDB2222

I think Nobbly is right. This is a great product for a patient FTB'er, who is prepared to wait 3 years before moving into his new home. All it needs is a retail wrapper round it, and I believe it could sell.

dhassen

I always hedge my long physical length

kennyboy66_2

nobblyned wrote: »

Financing costs are included in the price/spread on long dated spreadbets, so already accounted for, no quarterly costs.

.

Sorry, I should have made myself clear - the original article in the FT quoted "spreadfair", which is a bit like betfair for spread betting. You will find by checking on the property markets that spreadfair charge both a commission and a quarterly charge.
This is to cover there costs & profit for hosting the platform and providing a settlement mechanism.

Of course IG index or one of the other providers would not have this charging structure.

I can just see firms queueing up to put a "retail wrapper" around this highly speculative & volatile method of gambling.

I could also point out that the average house price is £177k not £185k (halifax July)
If you own this mythical average house, you are unlikely to be able to sell it for £177k, an average price that is already out of date.
By the time you sell it in 3 months time (if you are lucky) it could well be worth 6% less again (which is why the future price is lower).
Equally you can't buy the 3 year future at anything like 130k.

If this still doesn't convince you, I have a cunning roulette method for sale that really can't lose.
I also have some money stuck in Nigeria if anyone would like to help me get it out. Please send £5k to ............

karlcw68

One of the biggest indicators of market sentiment is that spread betting experts are all suggesting going short on all but certain commodities.

Even the Euro as a currency has taken some stick lately because of inflationary and employment worries in the Eurozone.

I've been shorting almost all of my spread betting trades since March of this year and thus far it's been a very healthy decision.

Have fun,
Karl