hedging using spread betting

joesan

Has anyone thought about hedging using spread betting? As in buying the property index to go down etc...

deemy2004

Ive been using spreadbetters (I.G. Index) for a Loooong time.

Though some key points with regards their property pricing -

1. The spread is BIG ! , i.e. for spot currencies its 6 pips or .03%, for property futures its a whopping 1.58% !!!

2. The prices move BEFORE the news ! I.e. YOUR TOO LATE !, Futures are already discounting a drop of x% (depending on region), if you were looking to short the futures than the best time was around March / April 04.

3. Futures only extend out 1yr 3 months, Which is NOT enough for a market with such long-trends i.e. you will at some point need to roll-over with the associated costs. Now if the property futures extended out 3 years then yes it would make it much easier to ride the trends, but 1.25yrs is not enough, too high risk.

Other than the above, the rest are positives, as profits are TAX FREE ! Then again losses cannot be offset against taxable income.

So basically unless your experienced spread better (in other markets) ! And know what your doing ! DON'T SPREAD BET PROPERTY ! The risks are huge !

Pal

If you win at spreadbetting you get cash to broadly compensate for the fall in value of your house.

However if you "lose" (i.e. your bet loses but your house price rises) then you are going to have to sell your house to pay your spreadbetting debts?

There is also the problem that changes in an index will not exactly match what is happening to the value of your house. Your house might rise in value by 10% while the property index rises 20%, meaning that you lose more money on the spreadbet than you gain in your home.

Dec_3

What does all this mean?? Hedging using spread betting?? Can someone explain please

frequent

I can answer your question on hedging and spread betting
Which do you not understand or is it both ?

As for anyone thinking of doing this i've pasted in an article I found on the subject.

LOOK BEFORE YOU LEAP !

"I shorted the London housing market using a spread bet with A.B.C INDEX(real name withheld).

I placed a trade in early July, my trade was running well and I was gaining good profit.

As the first few headlines splashed the papers, since such time my trade has bounced somewhat even though the news from Halifax, media etc is negative, confused by this I contacted A.B.C INDEX

"Why has my trade gone up on negative news I asked.

I quote " Due to mass selling we have closed this market a while ago so you are unable to trade on the housing market unless you would like to close a position"

So due to excessive selling A.B.C INDEX cannot balance the books so have shut up shop, my problem is everyone is short so if punters close their trade ( the only transaction anyone can do) it makes the price go up even though the "real Market is falling", even worse they did this without informing me or ask if I want to lock in profit.

Surely when a market is frozen so is the price! So I'm backed into a losing trade with the trade only able to go one way, unless the market re opens and they think they are going to re open the market in March can I gain but that's no bloody good for me as the mass selling would have made me a lot of dosh."

THEN TAKE ANOTHER LOOK BEFORE YOU LEAP, JUST TO BE SURE

deemy2004

What does all this mean?? Hedging using spread betting?? Can someone explain please

It means you bet on the house price index being at a particular level at a particular point in time in the future (quarterly pricing).

The future prices move in line with market expectations.

The best bets are those made BEFORE a turn happens.

Let me give you the figures

In early May 2004 - the March 05 House price futures for the Yorks and Humberside was trading at 127.3 to SELL . Some 7 months on the May futures are now trading at 117.5 to BUY!

SO Selling at 127.3 and BUYing at 117.5 - Nets you a profit of 9.2 - at say £2000 per point thats a profit of £18,400 - TAX FREE ! (the minimum is £1k per point).

I only track Yorks and Humberside so don't ask me what the futures were tradign for other regions.

Though note ! Spread betting is HIGH risk and NOT for the unexperienced. that goes 100X for trading house price futures !

deemy2004

I can answer your question on hedging and spread betting
Which do you not understand or is it both ?

As for anyone thinking of doing this i've pasted in an article I found on the subject.

LOOK BEFORE YOU LEAP !

Well thats an easy one to deal with - just hold the position to expiry and the closing level is the index level quoted by Halifax for the settlement month..