ICAP plc is a leading electronic and voice broker trading in interest rates, commodities, Forex, emerging markets, stocks, etc. It covers 32 countries, and provides the necessary infrastructure for the over-the-counter trades. You may not have heard of it, because it carries out transactions for financial institutions rather than for individuals. The name is a shortened form of Intercapital, the previous name for this business.
Intercapital was originally founded in 1986 as Intercapital Private Group Limited (IPGL), and was shortened to Intercapital when it was acquired by Exco plc in 1998. This larger group combined with Garban in 1999, and was renamed ICAP plc in 2001. There have been several acquisitions since then, expanding the reach of the trading services. It is estimated that the average daily transaction volume is more than $1.5 trillion.
ICAP currently offers interdealer broking for wholesale financial markets with both electronic trading and telephone broking services and runs the world’s largest electronic trading platforms for both FX (EBS) and fixed income (BrokerTec).
The emphasis in ICAP is on providing the best possible service and technology to its customers, with the goal of becoming the main infrastructure provider to the wholesale trading markets. The company is also a post trade risk services provider. It was hit hard in 2008 with the global economic crisis, and the share price fell from above 700 to about 200. The years since then have seen it go up to 575, but it is now less than 400. As a service provider, it’s income and profitability inevitably follow the success of the markets in broad terms.
The company is headquartered in London, but has significant operations in New York and Tokyo, with smaller offices in 21 other places such as Spain and Australia. Its operations are broken down into electronic broking, voice broking, and post-trade risk and information.
You can see from this monthly price chart that the company shares exhibited extreme volatility commensurate with the financial markets, and this provides excellent opportunities for spread betting profits. Your strategy should include adequate loss protection, given the potential for radical movement.
How to Spread Bet on ICAP Shares: Rolling Daily
ICAP is a wholesale trading company, and has had varying results in recent years. The current rolling daily price for a spread bet on the shares is 361.84 – 362.56. The rolling daily price is always in pennies, so this is the same thing as saying that the shares are worth just over £3.60 each.
Suppose you think that the price is going to go up, you might want to place a long spread bet, buying at 362.56, and staking possibly £8 per point. Assuming you are correct, the price may go up to 421.65 – 422.13, and you could close your spread trade and take your profits. As this was a long bet, the price it started at was 362.56, and it closed at the selling price of 421.65. 421.65 minus 362.56 is 59.09 points, so your £8 bet is worth £472.72.
No matter how well you plan your spread bet, you must understand that a proportion of them will fail and the price will go in the wrong direction. Suppose the price goes down, and you’re left cutting your losses and closing the trade when the price is quoted at 307.26 – 307.94. Your spreadbet still went on at the buying price of 362.56, but this time it closed at 307.26, which is a loss to you. The difference in points is 55.3, so multiplying this by £8 you find that you have lost £442.40.
As a third example, perhaps you could have placed a stop loss order when you opened the spread trade, and this would have closed your losing bet after a certain amount of loss without you needing to follow the market. If it closed the bet sooner than above, say at 315.04 – 315.82, then you may have lost less money. In this case you lost 362.56 less 315.04 points, or 47.52 points, and that would be a loss of £380.16.
ICAP Futures Spread Bet
If you want to take a longer view of the market, looking for price movements in the next few weeks or months, then you may want to take out a futures based spread bet. Although these usually have a larger spread, which can eat into your profits, they don’t incur any ongoing charges such as a rolling daily bet may. The current price for ICAP futures far quarter is 362.69 – 367.07.
You might think that the price is due to come down, and therefore take a short position with a sell financial spreadbet for £5 per point. This would go on at the selling price of 362.69. Whenever you have reached your profit target, you can close a futures based spread bet – you do not have to wait until the expiration date. Say the price dropped to 327.26 – 331.53, and this seemed to you to be as much profit as you were able to expect, so you closed the trade to collect your winnings. The starting price was 362.69, and the trade closed at 331.53, which means you made the difference of 31.16 points. Multiplying it by £5, your total profit would be £155.80.
If you had gauged the market wrong, and the price went up instead you may be forced to close the trade for a loss, preventing any further losses. Perhaps the price went up to 387.20 – 390.65. In this case you would have lost 390.65 less 362.69 points, or 27.96 points. For your given stake, this would amount to £139.80.
Finally, perhaps, as many other spread traders do, you put a stop loss order on this trade when you opened it. This would take you out of the losing trade without you having to watch the markets. Say it closed your spread bet when the price was 379.52 – 382.65. This time you would have lost 382.65 minus 362.69 points, which is 19.96 points. You would finish up losing a total of £99.80.