Riding on market roller coaster

Banking scandals, central bank interventions and yet more market volatility ensured it was anything but a quiet summer for traders this year.

And while buy and hold loyalists had their hearts in their mouths during the markets’ roller coaster ride, spreadbetters – who are typically short-term in nature – found themselves spoilt for choice with positions in currencies, shares and indices that could all be exploited.

This theme looks set to continue until the end of the year with the US election, global food price inflation and unemployment figures providing food for thought for retail traders.

Joshua Raymond, chief market strategist at City Index Group, says while most of his clients have preferred to take long positions in recent months, the ability to go short and profit from falling prices will ensure that spreadbetters have unlimited flexibility over the months ahead.

He explains: “The recent Barclays LIBOR scandal triggered violent downward price moves on the bank’s shares. The shares lost 15 per cent in one day’s trading session in late-June and continued to slump over the following weeks to the 148p mark, as Barclays chief executive Bob Diamond resigned and faced questions from MPs.

Chinese growth – or lack thereof – is likely to throw up yet more trading opportunities in the coming months

“Yet this big slump created a trading opportunity and as the bank’s share price fell, we saw buyers emerge, who profited from the near 45 per cent share price recovery from mid-July to mid-September – a huge gain.”

Mr Raymond adds that a simple £10 per point buy spread bet at 150p on July 26 would have netted the spreadbetter tax free gains of £660, had the trader closed the position when Barclays shares rebounded to trade at 216p on September 12.”

Looking ahead, Chinese growth – or lack thereof – remains a talking point for traders and one likely to throw up yet more trading opportunities in the coming months.

If China is able to stabilise its economy above 7 per cent growth, there is likely to be a more positive impact globally, according to analysts. However, this is far from guaranteed, according to Dieter Merz, chief investment officer at MIG Bank.

“If the Chinese economy deteriorates, global recession risks will rise dramatically and, fundamentals notwithstanding, the US dollar will once more be seen as a global safe haven and significantly appreciated against the euro,” he says.

However, Mr Merz adds that, if China is able to stabilise its economy above the magic 7 per cent marker, the outcome could be very different.

He explains: “We could see a positive impact, mainly based on the psychological aspect, for a more ‘risk-on’ environment where a further dollar weakness is in favour.

“A mid to longer-term further weakness in Chinese growth could bring the stock markets into trouble and as a consequence leave the dollar in a strengthening phase because of the unwinding of carry trades.”

For traders wanting to trade around other themes than China’s growth and the ongoing European Central Bank (ECB) “soap opera”, there is always the US general election which is guaranteed to get traders’ pulses racing.

Especially now that the ECB has bought the euro and eurozone more time to resolve the crisis, some of the focus will inevitably shift back to the United States and the outcome of the presidential elections on November 6.

David Cooney, managing director of Mahi FX, says that the US has not yet escaped recession, and the prospect of spending cuts and tax rises is a very real one.

“That would have very grave consequences for the global economy and create yet another hurdle for solving the euro crisis, with economic growth already looking like an endangered species within the eurozone,” he says.