Spread Betting On the UK Housing Market

By: Peter Jones

So why isn’t everyone speculating on falling house prices? One reason is that trading UK house prices is not that well known. Also, markets do not always go in one direction, a bear market rally can often catch out the unwary. And, as always with spread betting, this sort of leveraged investment carries a high level of risk to your funds. You can lose more than you initially invest. It may not suit all investors. Like the adverts say, only speculate with funds that you can afford to lose. Ensure you understand the risks and seek independent financial advice if and when necessary. But if you are considering trading UK house prices then it is worth noting that if you spread bet on house prices you can gain a simple exposure to fluctuations in the housing market. Spread betting also has several advantages compared with purchasing property directly. For example, little red tape and no delays, there is no stamp duty, no capital gains tax* and no need to put up the full value of the bet. Looking at IG Index they make their bets based on “the Halifax House Price Survey produced by HBOS, the premier and most widely publicised indicator of the UK housing market. So, whether you want to profit from predicted market shifts or hedge against the value of property you already own, you can back your judgement against nationally recognised figures”. How does it work? You simply 'buy' if you think the average price is set to rise or 'sell' if you think it will fall. The current spread of the Average London House Price (December) market is 258.1 to 264.1 points. The current spread of the Average UK House Price (December) market is 162.6 to 166.2 points. With spread betting, house prices are given in points per £1,000. Therefore you can spread bet on the Average UK House Price settling: Higher than £166,200 (166.2 points), or Lower than £162,600 (162.6 points) When this ‘December’ market expires on 31 December 08. You trade in £x per point. If house prices move £11,500 that means they have moved 11.5 points in this market. If you bet £5 per point and they move 11.5 points you would win / lose 11.5 points x £5 per point = £57.50. Trading UK House Prices Example So taking the above Average UK House Price spread of 162.6 to 166.2 points let us say you think prices will continue to fall. Therefore you Sell the market, you bet lower than 162.6 points for a stake of, let's say, £10 per point. When you Sell a spread bet your profit / loss is calculated by taking the difference between the price you sold the market at and the final price of the market. You then multiply that by the stake per point. Let's say that the Halifax declare the Average UK House Price as of 31 December as £155,800. That would mean this market would close at 155.8 points. If that happens then: Your profit / loss = (Opening Price - Closing Price) x Stake = (162.6 - 155.8) x £10 per point stake = 6.8 points x £10 per point stake = £68 profit However, spread betting does not always go to plan. Perhaps the UK market did not fall as fast as some predicted. Perhaps a Government initiative eg removing Stamp Duty bolstered the housing market. If Average UK House closed at £167,700 ie 167.7 points then; Your profit / loss = (Opening Price - Closing Price) x Stake = (162.6 - 167.7) x £10 per point stake = -5.1 points x £10 per point stake = -£51 loss Spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary. * Note that tax law can change and can differ if you live outside the UK.
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Article Source: http://www.articlesnatch.com
About the Author:The author is a seasoned commentator on the UK futures and spread betting markets.