It is often said that the time to buy is when the stock market is weak and cheap, rather than when it is strong and expensive. Many firms and sectors saw have seen their prices impacted as a result of widespread selling early in the year and cash-rich investors took the opportunity to pick up some high quality investments at bargain prices, positioning their portfolios well throughout the recent rally in equity markets both here in the UK and also globally.
Market volatility remains high across many assets but has now dropped considerably from its early-2009 levels. Whilst risk-averse investors tend to regard volatility as something to be avoided, opportunistic investors have seen it as a distinct advantage which has presented them with many interesting opportunities. When markets are volatile, short term movements in asset prices can be accentuated and it is common to see relatively large price movements, even within a single day.
A day in the life of an opportunistic investor
Wake up, login and check overnight emails from the USA. No breakfast. I know the ‘experts’ recommend a hearty start to the day, but I’m suspicious of experts, and in any case – most of the thin people I know do skip breakfast. |
During the first half of the year, many of our clients took advantage of these swings in the market by trading intra-day, otherwise known as ‘day trading’. If timed correctly, this high risk strategy can offer the opportunity to make considerable gains over the short term. However, it is also possible to make big losses if you get it wrong, so you will need to apply appropriate risk-management to your investment strategy if you choose to play the market in this way
With market conditions and equity prices changing so rapidly, Barclays Stockbrokers recognises how important it is to give you access to the tools, information and investment products to pinpoint and take advantage of market opportunities as they happen. There is also an array of investment products beyond individual stocks and shares available such as:
- FX (foreign exchange)
- CFDs (Contracts for Difference)
- Financial Spread Trading (FST)
- Covered Warrants
- Turbos
- Exchange traded commodities (ETCs)
- Exchange traded funds (ETFs)
- Structured products
Some of these can provide important diversification in portfolios, both geographically and across non-correlated assets. Others can target ‘absolute returns’ the aim being to provide the possibility of making a profit regardless of whether the market goes up or down.
To read our Cautious Investment Approach click on the yellow abacus at
the top of the page, click on the amber one for our Moderate Approach.
Foreign Exchange (FX)
FX trading enables investors to trade in the world’s leading currencies and profit from small movements in their relative prices. As movements in currencies tend to be quite small, currency trading is typically leveraged so you can gain greater exposure to currency movements and with it make bigger gains (and losses).
Strategy to consider
Currencies are traded in pairs – such as US Dollar (USD)/Euro or USD/Yen – with the price for the pair representing how much of the second currency you get for one unit of the base currency. For example cable (GBP/USD) at a bid/sell price of 1.6500 means that you would get just above one and a half dollars for one pound ($1.65, to be exact).
Continued volatility in currency markets, and the recent rally in sterling in particular, means that FX markets are playing an increasingly high-profile role in the investment strategies of active, experienced investors. If you believe that Sterling (GBP) will continue its recent rally and will continue to recover against the Euro, you could buy GBP and sell Euros, placing as little as 1% of the face value of the trade as a deposit. However, should the rate move against you, you may have to add more funds to your account or risk having your position closed out if the available margin erodes significantly and lose money.
Contracts for Difference (CFDs)
CFDs allow investors to gain leveraged exposure to short-term fluctuations in a wide variety of financial markets without needing to buy or sell the underlying investment. With CFDs available linked to more than 500 UK and 700 international stocks, commodities, indices, currencies and sector specific contracts, they are a flexible and cost-efficient alternative to traditional investments.
Strategy to consider
If you are bearish on Company A and believe its shares will fall in value, you can go ‘short’ by using CFDs. If the current share price is 700 pence, you could use CFDs to gain exposure to 1000 shares, or £7,000 worth of exposure, by putting down a deposit of as little as 10 per cent, an outlay of just £700. If you are right and the share price falls to 650 pence, you will have made a profit of £500 (50 pence x 1000 shares) on the transaction, less commission. However, if you are wrong then remember that your losses will be magnified as well. CFD transactions are free of the stamp duty that you would pay on equity trades.
Although they are considered high risk, you can also use CFDs to insure or ‘hedge’ investments already in your portfolio, so that if the value of one falls, the other rises.
Financial Spread Trading (FST)
Financial Spread Trading (FST) is a dynamic, flexible way for investors to speculate on the direction of future price movements, both up and down, of a wide variety of financial instruments. As FST requires a deposit which is only a fraction of the contract value, a small movement in price of the underlying security will result in a much larger movement in the profit or loss of your trade, and you can lose more than your initial investment.
Strategy to consider
Following the recent rebound in oil prices, you might believe that the price of oil will continue to rise from today’s levels. Through FST, you can indicate the amount you wish to stake on each point of the oil price movement upwards and the profit or loss would simply be the difference between the opening price and closing price of your trade, multiplied by your stake.
Covered Warrants
A covered warrant is the right to buy or sell an asset - including shares, indices and commodities - at a fixed price, on or before a specified future date. As covered warrants are geared they magnify positive returns if you speculate with them in the right direction, and while you can make losses, this is limited to your initial stake.
Strategy to consider
If you felt that Company A’s shares, currently valued at £3, were likely to rise in value over the next 6 months, you could buy a 6 month Covered Call Warrant for a small deposit, say 30 pence, with a strike price of £3. This would provide you with the right to buy that company’s shares at the price of £3 in 6 months time. If at the end of the 6 months, the underlying asset price is above the strike price (£3 in this example), you would receive a cash payout equal to the difference between the strike price and the current value of the shares. But if the underlying price is below the strike price, the Call Warrant would be allowed to expire and become worthless, limiting the maximum losses to the price paid for the covered warrant, in this case 30 pence.
Turbos (formerly known as Listed CFDs)
Turbos are products linked to share prices or indices, similar in some ways to covered warrants, but with some key differences. Investors can use them to take either 'long' or 'short' positions, to boost upside potential in portfolios, or for hedging strategies.
Strategy to consider
If you believe that the value of the FTSE 100 will rise from current levels, you could buy a ’long‘ Turbo contract with an expiry date in 6 months time and a strike price of 4200, providing you with the right to buy the index at this level in the future. If the cost of the Turbo at a current Index level of 4450 is £0.39, then your maximum loss is limited to £0.39. If the FTSE were to rise sharply over the next month or two, you could choose to sell the Turbo and realise a profit, or hold onto the Turbo in the hope that the Index will rise further. However, it is important to monitor the situation very closely as if the Index fell below the strike price of 3600, the Turbo would expire worthless. However, the loss would be restricted to the cost of the Turbo regardless of how much lower the Index fell.
Exchange traded commodities (ETCs)
ETCs are specific types of funds which are easy to trade and provide investment exposure to both ‘soft’ agricultural commodities like wheat, corn, pork bellies and ‘hard’ commodities like oil and precious metals. Some ETCs track a commodity linked index, while some will provide direct access to the underlying commodity. ETCs trade like shares and may not be for everyone. They closely track the performance of a commodity or an index and as such their value can go down as well as up and you may get back less then you invested.
More on Exchange Traded Commodities (ETCs)
Strategy to consider
Gold is a commodity that has seen a tremendous rise in price over the last 12-18 months and it can have an inverse relationship with both equity markets and the US Dollar. It has attracted a great deal of investor attention amidst current turbulent markets, rising to a record $1000/oz in February 2009 and pushing up once again towards that level in June. If you believe that the value of gold will continue to rise, you could invest in ETFS Physical Gold ETC which is backed with physical gold. Gold – Time to invest?
Exchange traded funds/iShares
An exchange traded fund (ETF) is a specific type of fund that allows investors to effectively ‘buy the market’ through a single share. Simple, transparent, liquid and very cost effective, ETFs track and emulate the performance of an index, such as the FTSE 100, and can provide exposure to mainstream investments, as well as niche sectors, international markets and assets that may otherwise be difficult to access directly.
Strategy to consider
Their flexibility, liquidity and cost-effectiveness make ETFs an ideal way to trade and take profit from short term movements in a particular index and in recent turbulent markets, there has been a marked increase in the trading of ETFs as investors back their views on the short-term movements of global markets. ETFs are traded like shares and may not be for everyone. They closely track the performance of an index and as such their value can go down as well as up and you may get back less then you invested.
BGI is the market leader in ETFs with its iShares range. To execute your views around the movements in the value of the UK and US markets you can trade in and out of the iShares FTSE 100 (ISF) or iShares S&P 500 (IUSA). ETFs can be traded comparatively cheaply and free of UK stamp duty.
View the complete list of iShares
Structured products
Tradable structured products issued by Barclays Bank Plc, with a secondary market on the London Stock Exchange, provide the potential for defined returns, with either full capital protection – where you get your money back if held for the full term otherwise you may get back less than the initial amount invested- or in return for putting capital at risk should the market fall, investors can often secure enhanced returns through what are described as Supertrackers.
Structured products can be used to complement your core investment portfolio by providing access to markets that can prove difficult for retail investors to gain access to. for example our China & Agriculture Note or Commodities Notes which diversify your share portfolio by offering exposure to other asset classes. Find out more about our latest structured products and the part they can play in your portfolio.
Strategy to consider
Some Investment Notes provide higher gearing in order to maximise returns for those more adventurous investors prepared to sacrifice some protection. Investment Notes may be attractive if you are seeking to access the potentially higher returns from more exotic or developing economies.
For example, if you believe that China is poised to resume its relatively high levels of growth and that population expansion and supply-side issues affecting soft commodities will provide a boost to farming, you might decide to invest in the China and Agriculture Investment Note which matures in 2013. This note provides 125% of the rise in value of a basket of equities and commodities across three indices, the FTSE Xinhua China 25, the S&P GSCI Agriculture Excess Return and the S&P GSCI Livestock Excess Return Index. It is fully capital protected, so if your predictions turn out to be wrong, you still get back the full value of your investment if you hold it to maturity. If you sell early you may get back less than you invested.
Advanced strategies
It is now possible for investors to automate their own trading strategies, or more generally protect their equity portfolio, with the help of our advanced order types. Having determined your strategy you can input stop loss and limit orders online, which automatically trigger shares sales and purchases on your behalf when target prices are reached or breached.
A trailing stop order tracks a share price up and automatically sells the holding when it falls by a given amount from its peak, letting you benefit from movements in a rising market but kicking in to provide protection if prices move south. Every time the share price hits a new peak, a new stop loss position is automatically created, which not only restricts losses but also locks in higher gains.
Many of our clients find these tools extremely useful, with record levels of these order types set up over recent months and there are no additional charges associated with using advanced order types as any resultant deals placed are charged at your usual commission rate.
Active trader tools
Access to the latest research and data is the foundation of making well-informed investment decisions and developing a successful active trading strategy across shares, ETFs, derivatives and other types of investment.
BARXdirect: Equities is Barclays Stockbrokers award winning, customisable trading platform which has everything in one place to predict, analyse and react to the market. Its functionality helps to build and support successful investment strategies providing the ability to quickly identify and then capitalise on opportunities and execute trades fast enough to keep pace with market movements. BARXdirect: Equities offers Level 2 pricing so you can see the actual buy and sell orders for each share in the market as they are amended and executed in real time. View our BARXdirect demo
