Worst Trades of 2008

Overall the year was another good one; the beauty of spread betting is that bear markets are another opportunity to make money. I made some big cash from shorting the FTSE, especially over the autumn months. But on the flip side, I lost a small fortune in October, trading in some nasty instruments called options. FTSE options had been a big source of income over the years but, in common with all the major banks, I suddenly found myself holding a position that was going from bad to catastrophic. Disaster.

Throughout the year, losing trades went hand-in-hand with profitable ones. That's OK, that's how the business works. The trick is to keep the losses minimal and to capitalise on the winners, which I managed to do. There's no shame in making losing bets, but the following trades did leave me with enough egg on face for a family-sized omelette:

1) Xstrata. As you may have guessed by now, I hardly ever play individual shares; I'm not an equity analyst and prefer to concentrate my attentions on the main currencies and the FTSE index. However, back in February, feeling good after a flying start to the year, I was tempted in by the Vale bid for Xstrata. When I paid 3840-4158 for long bets in Xstrata, the price was still well below the rumoured offer price (Probably should have taken more notice of that). I made money on some of the bets, but was left holding the expensive parcel when the music stopped and Vale said, "No Deal". That little trip into equity land cost me nearly £800 and taught me not to get involved in bid situations unless I've got inside information (only kidding officer). The only good news was that I put the trade out of its misery early doors, rather than turning it into ‘an investment'.

2) FTSE. This one was really dumb as it was my chosen specialist subject. This sale of FTSE wasn't dumb because of the loss incurred; it was dumb because I ignored my best instincts. On June 30th (month and quarter end) EU inflation data showed a rise to a suprisingly high rate of 4%, double the target rate. Equities were in a firm downtrend so I sold £2 at 5516, nearly the low of the day. One rash moment took no account of the likely re-balancing into equities after an 8% fall on the month and I found myself shutting down the trade at 5598 for a £164 bloody nose. The following day the downtrend resumed.

3) Lloyds Bank. With hindsight this was the daddy of the dumb trades; some of my trading acquaintences even politely tried to tell me I was too early with the call, but it was another classic example of why I should stick to what I do best. At the end of May I figured that the UK banks were worth looking at and Lloyds TSB in particular might be worth a punt (you can quite clearly see where this is going.). Naively, I pointed to the prospective dividend yield of 9.25% and said that it wasn't exposed to the same silly loans as the other banks. Ho, ho, ho, what a great call that was. Luckily my trading style meant that my £5 long at 399p was stopped out at 384p for a containable loss of £75, whereas my investment style saw me eventually sell the shares in my SIPP for a lot less.

A Thumb In The Air For 2009
Predictions are nonsense; even the cleverest guys rarely get it right. But I'm happy to play the New Year game and stick some targets up on the board. There's no point in going for easy, sensible targets; if I'm going to do it then let's push the boat out:

1) FTSE to hit 6000! Yep, that's a 42% gain from current levels, but just think the unthinkable, that all the monetary and fiscal measures start to work. They don't need to work much next year, but if there are signs in the latter part of 2009 that things are starting to look up, there could just be a clamour to get back into equities while stocks last.

2) Euro to crash to $1.20 against the Dollar. This is a bit tricky; perhaps we see $1.50 first as traders focus on Beardy Ben's helicopter giveaway. But at some point the virtuous Eurohawks will have to wake up and smell the coffee. More likely, they'll get the message from forex traders sensing the disunited states of Europe disappearing down the Eurotoilet. Following the same course of action as the rest of the world, but 6-months late, might not be enough to prevent the break-up of the EU.

3) A FTSE company going belly up. OK, that's probably a bit of an easy one, but I want to get at least one right.

There you have it. A summary of a decent year in the spread trading markets. Roll on the rollercoaster of 2009.

Seed Newsvine

Bookmark this article in your preferred program

Comments

Add Comment

Popular Articles in this cathegory

This article is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.