Essar Energy is a young Indian-focused energy company, and as you can see from the weekly price chart below, its performance has been disappointing, which means it could have been rewarding for spread betting but not for investors. The company was listed on the London Stock Exchange in May 2010 and hit the FTSE 100 in June 2010. Now it languishes halfway down the FTSE 250.
The prospects for Essar Energy should be good, with India rapidly evolving and requiring more and more energy. It has several refineries, and various exploration sites, and claims to have substantial proven reserves. It also owns nearly 1400 petrol stations.
Operations are not solely in India however, as Essar has a refinery in the UK and a 50% interest in a Kenyan refinery. The exploration fields are in various countries, such as Vietnam, Nigeria, Madagascar, and Indonesia, as well as India. It runs six power plants in India and one in Canada, and aims to increase generation capacity to nearly double to 6700MW by March 2014.
The oil and gas business is run through Essar Oil, a company listed on the Indian stock exchange, and electricity generation includes using coal resources. The majority of the power generated is supplied to adjacent Essar facilities.
Essar Energy started in 1998 as a wholly owned subsidiary of Essar Group, which still retains ownership of about three quarters of the shares.
Following the initial decline in value, you can see that on a weekly scale the price is trading sideways. This is not the case if you look at the daily charts which show clear up and downtrends. It appears that Essar has a long way to go to return to its original valuation, and in the volatile energy industry, despite the firm’s optimism, it may take some time to regain its value.
Essar Energy Rolling Daily: How to Spread Bet on Essar Energy Shares?
You may decide that shares in Essar Energy should go down in value in the next few days, so look to place a short bet on them. The current rolling daily price is 118.60 – 119.20, so you could stake £12 per point at the selling price of 118.60.
Perhaps it turns out that this was a good bet, and that the price drops to 88.36 – 88.96. You close the bet before the price can recover. As this is a short bet, it closes at the higher or buying price of 88.96. You opened your bet 118.60, and you closed it at 88.96, which gives you a difference of 29.64 points. Multiplying by your stake, your total profit is £355.68.
The price might have gone the other way, as it is impossible to know with certainty which way the markets will go. Say it went up to 139.82 – 140.42 and you decided to close your bet and cut your losses. Against the starting price of 118.60 the price has gone up to 140.42, which means you have lost 140.42 minus 118.60 points, which is 21.82 points. Multiplying by your stake of £12, your loss amounts to £261.84.
Many traders find it difficult to keep watching the market all the time, and therefore they resort to using stop loss orders to take care of closing their losing trades. The spread betting provider will close your trade if it reaches a price level that you set when you open the bet. With a stop loss order in this case you might find that the spread bet would be closed when the price went up to 132.05 – 132.65. The bet would be closed for you at 132.65. Taking away the starting price of 118.60, you would have lost 14.05 points. For your chosen size of wager, that amounts to £168.60.
Essar Energy Futures Style Bet
When you place a futures style spread bet, the bet can stay open until the expiration date that you select, without any charges to your account. Even so, if you need to you can close the bet at any time to protect your profit or to prevent further losses. The current price for a futures style far quarter bet on Essar Energy is 118.83 – 120.27.
Perhaps you are bullish on Essar, and place a long bet at 120.27 for £9 per point. Checking in on it periodically, you decide to close the spread bet and collect your winnings when the price goes up to 146.32 – 147.93. You opened your bet at the price of 120.27, and you closed the bet at 146.32. That means you gained 146.32 minus 120.27 points, which is 26.05 points. At a price of £9 per point, that amounts to £234.45 profit.
On the other hand, during one of your checks on the price of Essar you might find that the quote has dropped to 98.23 – 99.53, and you would close the bet quickly to prevent further loss. Your bet opened at 120.27, as before, and this time it closed at 98.23. The difference in points is 22.04, so at £9 per point your loss is £198.36.
One method used by many spread traders to avoid being caught out in a large loss is to set a stop loss order when they open the bet. That way you do not have to be watching the price, and your spread betting company will close the losing trade for you. With a stop loss order, this spread bet might have closed earlier at 106.72 – 108.08, saving you some money. The opening price was 120.27 and the closing price was 106.72, for a point difference of 13.55. This amounts to a loss of £121.95.