Drax Group Fundamentals
The Drax Group is in the business of electrical power generation, with its main subsidiary being called Drax Power Limited and owning the power station near Selby in North Yorkshire. This is the largest coal-fired power station in Europe and supplies about 7% of UK’s electricity. Energy stocks are usually popular for spread betting because of their volatility, but as you can see from the daily chart below generally the price of Drax shares does not fluctuate much.
The power station was built in the 1970s, and in the privatization of the UK industry it was first transferred to National Power. It was subsequently sold on to AES Corporation for nearly £2 billion. The power station sells power onto the wholesale electricity market, and also makes money from selling by-products, such as the fuel ash.
The price of wholesale power crashed, and AES abandoned the plant in 2003, but by 2005 prices had recovered and the power station was again valued at about £2 billion. Drax Group floated its shares on the stock market at the end of 2005 to raise the capital needed.
The size of the power station cannot be underestimated. It has a production capacity equal to 5% of the total installed capacity in the UK, though it produces more than this as a share of the market. It burns approximately 10,000,000 tons of coal a year, with half of this coming from domestic markets, and the rest coming from North and South America and Russia.
Current plans include converting the plant to burn more biomass fuel, and Drax has recently organized a credit line with three major banks for £400 million to cover part of the cost of conversion. You can see from the chart above that the price is relatively stable, but can be impacted by news events, so this is one stock where you may wish to “trade the news” for best profits.
Drax Group Rolling Daily: How to Spread Bet on Drax Group shares?
As a major power supplier, Drax has a relatively stable market and with careful control of its operating efficiencies should see a steady growth. However, major events in the industry may impact its share price. The current price for a rolling daily bet is 554.6 – 557.4. If you believe that the price will go down, you may place a short bet staking perhaps £3 per point.
If this bet works out, you might find that the price goes down to 472.6 – 475.4. It is easy to work out your profit. Your bet opened at a price of 554.6, the selling price. The bet closed at 475.4, the buying price. 554.6 minus 475.4 is 79.2 points. For your size of stake, that amounts to a profit of £237.60.
If instead the price went up after you placed your bet, you might find that you have to close the trade and accept your loss. Say it went up to 615.5 – 618.3 and you ended the bet for a loss. The opening price was the same, at 554.6, but this time the bet closed at 618.3. That is a loss of 63.7 points. Multiplying by £3 gives you a loss of £191.10.
An important part of your strategy to make a profit at spread betting is to make sure that you keep down the size of any inevitable losses. Many spread betters use a stop loss order to make sure that a losing bet is closed in a timely manner, whether or not they are online or watching the market. With a stoploss order, in this case you might find that your spread betting provider would have closed the trade for you when the quote was 598.3 – 601.1. Taking the starting price of 554.6 away from the ending price of 601.1, you find you have lost 46.5 points. That amounts to a loss of £139.50.
Drax Group Futures Style Spread Bet
You may decide that the shares in Drax are going to rise in value in the next few weeks or months. If so, you may want to position yourself with a long bet for the far quarter futures spreads, currently quoted at 556.1 – 562.8. You decide to wager £3.50 per point.
If this turns out to be a good bet, you might decide to close the trade and collect your profits when the price gets up to 622.3 – 628.5. To work out how much you have won: –
- Your bet was placed at a price of 562.8
- Your bet closed at 622.3
- Therefore you made 622.3 minus 562.8 points
- Which is 59.5 points
- Your bet was for £3.50 per point
- 59.5 times £3.50 is £208.25, your profit.
Many times you will be frustrated by the financial markets, and find that you have a losing bet which you need to close to prevent further loss. Say in this case the price dropped to 515.7 – 521.9. The calculation of your losses is similar to the previous one:-
- Your bet was placed at a price of 562.8
- Your bet closed at 515.7
- Therefore you lost 562.8 minus 515.7 points
- Which is 47.1 points
- Your bet was for £3.50 per point
- 47.1 times £3.50 is £164.85, your total loss.
One way that you may be able to reduce the loss on a losing trade is by using a stoploss order. This requires your spread betting provider to close your bet as soon as it touches a certain level of loss, and saves you having to watch the markets. Say in this case a stop loss order would have closed out your bet when the quote was 523.1 – 528.8.
- Your bet was placed at a price of 562.8
- Your bet closed at 523.1
- Therefore you lost 562.8 minus 523.1 points
- Which is 39.7 points
- Your bet was for £3.50 per point
- 39.7 times £3.50 is £138.95, your total loss.