Is this practical with spreadbetting?

[arabianights]

I'd like to place a number of spread bets, going short one company versus long an other (e.g. Ryanair and Easyjet), and ideally keep the positions for a couple of months. I can see some fairly obvious difficulties doing this and would like some advice on whether they are surmountable with current spreadbetting platforms without me having to monitor my position regularly.

The most obvious and severe problem is stops. I will need a stop but it should be on my entire position, not the individual companies. I don't care if one position loses a lot so long as it's offset by the other position. Is there a platform with a stop system that would allow me to get around this?

The market capitalization of the two companies is the next issue. Obviously if one company is twice as large then I need to put twice as much per point on the smaller company. If this ratio changes dramatically is there a way to automatically change what is on each company per point? I could live with difficulties here as a change in relative values is of course what I am speculating on.

Finally, how will margin requirements be affected? Will any of the spread betting companies take into account that the strategy is somewhat sector and market neutral and lower them? I suspect not but it would seem rational for them to do so.

 

[peto]

I think the arrangements you have in mind are a somewhat too sophisticated for sb companies. They work on a fairly simple and largely automated model which is not going to take into account the dynamics of your pairs as regards stops and margin. Unless you're running such huge positions that you could interest one of them in making a special arrangement with you. Some US brokers trading US stocks will calculate margin based on a risk calculation along the lines you suggest.

I was going to suggest that if you only have one pair running at a time I you might carefully adjust the balance of your account so that you are liquidated as the account falls below a pre-set level (margin call); however I don't think this would work as they would probably only liquidate one half of your positions. A full service stockbroker might help.

As regards the ratio of market capitalisations, I think you mean the ratio of share prices, which is not the same thing because not all companies have the same number of issued shares. But agreed, you will need more of the one with the cheaper shares. Buying and selling shares in one half of your pair to maintain your ratio, is one thing at least which should present no difficulty!