Short Sterling

[joebloggs99]

I've never traded short sterling before but wouldn't it be a no brainer to go short on short sterling right now? I know this is a long term investment but you could make 10x your money if the base rate goes back up to 5%

Is it possible for short sterling to go above 100? If not, then there is not much risk at all with such a trade - unless I've missed something?

Also, how can spread betting companies make money from this if surely more people are going short now than long?

 

[arabianights]

I've never traded short sterling before but wouldn't it be a no brainer to go short on short sterling right now? I know this is a long term investment but you could make 10x your money if the base rate goes back up to 5%

Is it possible for short sterling to go above 100? If not, then there is not much risk at all with such a trade - unless I've missed something?

It's a future, remember. If you look at say Dec 11 by latest settlement we have a LIBOR of 4.29% priced in already. So if rates remain the same and LIBOR is approximately 0.6 then you will lose 359 ticks... conversely if rates go to exactly 5% by then and LIBOR is around 5.6% you will make 124 ticks. It's not as simple as lookig at Sep 09 trading 99.37...

There is nothing to stop sterling trading above 100 on exchange; at present the price limit iirc is 102, although this would no doubt be extended if LIBOR went below -1%... I can't see this happening! More worryingly for you if spread betting I can easily see a fat finger or foolish stop taking it above there once and stopping you out somewhere ridiculous.

Finally, please be aware that if you sell the fronts at the moment you are selling into a bull market fed by an evil cartel of banks, happily sucking everyone in with 99.50 target on sep and dec, before LIBOR mysteriously will start creeping up again...

Also, how can spread betting companies make money from this if surely more people are going short now than long?

By hedging in the underlying market.

 

[Martinghoul]

Cap'n Arab is completely 100% correct... You have missed something.

It's all about what short sterling contract you're talking about. My guess is that you're looking at the fronts and completely ignoring how these contracts actually settle. For example, you will sure make lots of money going short the Sep9 contract now if the Bank of England were to hike rates to 5% in the next month. Do you see this happening?