Caution Needed When Spread Betting on Shares with High Prices
Below, an interesting example from 2012 of why traders should be wary of trading stocks with high share prices. This lesson is still very much valid as of 2016.
Last night, Google's quarterly results were mistakenly revealed before the market close, when they were supposed to be announced after the finishing bell.
The confusion caused the Google share price
to plunge over 11%, with the stock finally settling more than 8% lower.
Incredibly, the initial 11% decline came in the space of less than 10 minutes. This fall was around $82 or, in financial spread betting terms, a total of 8200 points.
As a result, anyone with a buy trade as small as £1 per point in the stock would have been nursing an £8,200 loss, assuming that they did not have a stop order
That is the sort of risk you take when speculating on some of these high value stocks priced at £500+ / €500+ / $500+ a share.
was also affected by the broader tech sell off, declining almost 2%, and that in itself was a move of 1200 points.
It's little wonder that Google stocks were suspended for two hours after the announcement, as it took so many people completely by surprise. And if there's anything that the stock markets don't like, it's surprises.
Google also suffered from a similar fall at the beginning of the year, so it has straddled 2012 with two 8% declines, having quite significantly missed Wall Street forecasts.
Therefore, the warning to any spread betting account
holders is this; if you are going to trade these sorts of stocks, you had better have deep pockets.
Stop Orders Recommended
With FinancialSpreads accounts, Stop orders are automatically added to each trade (although clients can opt out of these).
With Financial Spreads MT4 accounts, Stop orders are not automatically added to each trade however, we recommend that you add a Stop order manually.
With any account, if a Stop order is triggered it is subject to market gaps unless you specified for your Stop order to be guaranteed.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 21 July 2017