LONDON, February 29, 2012 /PRNewswire/ --
Traders spread betting on HSBC shares, who decided to short sell and speculate on falling prices before Monday 27th February 2012's earnings announcement, were no doubt pleased with the result, as despite the bank reporting profits of £13.8 billion for the year, up 15% for 2011, shares fell, with each short sell spread bets netting a profit for each penny that HSBC share prices fell.
By going short and selling, traders would have made a profit from the figures as despite being amongst the biggest reported in the Western banking sector, the actually missed most analyst expectations, triggering a fall in the banks' share price.
Commenting on the results, chief executive Stuart Gulliver commented that 2011 had been 'a year of major progress for HSBC', adding:
"We recorded a strong performance in faster-growing markets and had a record year in commercial banking."
However, despite the positive rhetoric continuing concern over the global economic climate saw HSBC shares fall 3.7% on Monday 27th February 2012, reflecting the opportunities for spread bettors to go both long and short on this particular market.
Below, City Index explains how, using HSBC shares as an example, traders - who prior to Monday's announcement - could have profited by going short.
In turn, you will also see how those who went long would have made a loss on the day.
Going Short on HSBC Shares
As an example, let's consider that it is on the previous Friday (24th February 2012) to Monday's announcement. Using your chosen market analysis tools, you predict that HSBC will announce on Monday 27th February earnings that disappoint the market, and this will trigger a fall in their shares price.
In this case, you decide to 'go short', selling at £10 per point at the sell price of 574p.-
On Monday,HSBC did in fact announce weaker than expected earnings triggering a fall in their shares, meaning you were correct.
The share price falls to 550p (for example) and you decide to take your profits and close your trade, netting a tax-free* profit of £240, i.e. (574-550) x 10 = 240
Going Long on HSBC Shares
On the other hand, let's consider that a on the Friday prior to Monday's announcement (24th February 2012), that you had analysed the market using your preferred online trading tools and predicted that on Monday 27th, HSBC would shares would rise on the back of their earnings.
In this case, you decide to 'go long', buying at £10 per point at the buy price of 575p.
As we already know, HSBC share prices actually fell on the Monday by over 3%.
Therefore, your prediction is proven to be incorrect. You allow it to reach 550p, at which point you decide to cut your losses; closing you trade by selling at £10 per point.
Therefore, by buying at 575p and selling at 550p - with a £10 per point stake size - you net a loss of £250, i.e. (575-450) x 10 = 250
*Spread betting is exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.
Traders spread betting on HSBC shares would have either made a profit or a loss depending on whether they went long or short on their trades. Remember, as a leveraged profit you can incur losses greater than your initial deposit. Ensure you fully understand the risks.
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SOURCE City Index