By Nicholas Dockerty
Financial spread betting is fast becoming an essential extra tool for investors and traders to use to take advantage of shifting short-and long-term trends on the financial markets. One of the reasons it’s attractive to seasoned market participants is the sheer amount of markets you can take a position on.
For instance, if you were interested in the mining industry you could spread bet commodity prices, industry sectors, forex, indices, shares, binaries and options.
Since the start of the global recession we’ve seen commodity prices steadily rise. While the headlines tend to be taken each week by gold breaking another price record we’ve seen the prices of aluminium, coal, copper and silver go up too.
As a result of this trend we’ve seen the profits of the major mining and metal based companies’ rise and rise and begin to dominate the direction of FTSE 100. There are now thirteen such companies in the FTSE 100 and they are:
Rio Tinto; BHP Billiton; Fresnillo; Kazakhmys; Eurasian Natural Resources; Vedanta; Lonmin; African Barrick Gold; Antofagasta; Xstrata; Randgold Resources; Johnson Matthey; Anglo American.
While it’s a heavyweight industry – accounting for well over a third of the total market capitalisation of all the companies within the FTSE 100 – it’s also a fragile one too.
Substantial profits make for healthy share prices. However, with mining companies being so dependent on commodity prices and commodity prices being so dependent on a range of factors not always in the direct control of the mining companies, the day-to-day share prices of mining companies are prone to fluctuate.
Each commodity has its own unique combination of factors that will influence it.
If the Central Bank of China announces it’s trying to slow down its economy by raising interest rates it will affect the price of copper as demand is likely to fall for commodities used in manufacturing. If the US dollar rises after a boom in domestic GDP then the price of gold will be affected as demand for the precious metal will fall as it won’t be such a successful hedge against a weak dollar.
There is no doubt then that mining companies are increasingly exerting a powerful influence on the overall direction of the UK’s leading index. And more so than ever before it’s better to look at the broader FTSE 250 to get a more truer picture of how well UK plc is doing.
Indeed, consider what affect a major fall in commodity prices might have on the direction of the UK’s leading index?
About the Author
IG Index is the leading spread betting company in the UK with one-in-two UK financial spread bettors having an account with them – according to a survey by research organisation Investment Trends. You can find out more at www.igindex.co.uk.
