Nature of Long/Short betting - I'm confused

[Chomp]

Hi all,

I've been trying to learn about markets and particularly spread betting recently, but have a very basic question that keeps bugging me about short and long positions.

As I write, IG are quoting 423 for Gold in March, while today's spot price is 419. If I think that come June the dollar will have stiffed, debt bubbles will be bursting left right and centre and, generally speaking, gold will have gone up, I should go long. Fine. However...

It's the 423 figure that bugs me. It is a number arrived at by the market today regarding its expectation for March. My question is this: what value does my insightful reading of the currency and debt situations actually have?

What I mean to say is surely these judgements are already factored into the 423 figure? In other words, I should only bet of I consider that the market is underestimating the rises to come...after all, it has already spotted that by March 419 will have become 423, so surely this is for the same reasons I've spotted?

It would only become a good bet, then, if the 423, say, was merely an extrapolation of the level of CURRENT rate of rises in gold. Then I could say "Aha! The market expects gold to keep rising as it is but I (genius that I am :cheesy know through my reading of the currency/debt scenario that it's going to raise even more than that. Go long." No brainer.

I am not merely betting that the price will rise, but also that it will rise by more than the current market already EXPECTS it to raise.

I'm confused now and have lost my thread! Written down, my question looks silly, and I can easily imagine the answer is:
1. It depends on the market.
2. Work out the upward/downward trend and estimate if the market is merely extrapolating from this to get it's "future" prices and there is possibility of extra movement I can exploit.

Hmmmmmm....Have I answered my own question? Am I talking complete ****? Many thanks.

Cheers,


David.

 

[TheBramble]

David, welcome to t2w.

No, it's a good question and it shows you're just as bangled as the rest of us.

Your guess, really is, as good as anyone else's.

The SB price, being higher than it 'should be' should give you some comfort. They also think along the same lines at present as you do. They probably know more than we do. If they haven't got it all factored in, nobody has.

In which case, your instinct is possibly right - it's just the timing and price level that may play havoc with your plans.

If the SBs are playing your side, you're reasonably safe - and yes, you're right to question your sanity. If it looks sensible, it's probably not.

 

[Chomp]

Thanks Bramble. I guess what you're saying is it ain't easy!

One comment - the more I look into this the more remarkable the similarities I notice with poker. They're both about discipline, research, experience, luck, timing, psycholgy, numbers, probability, nerve.

Fall short in too many of these, and you're screwed. As a break-even poker player (in other words, a marginally LOSING poker player) I know that fear, ignorance, unpreparedness, vanity, hubris are your mortal enemies.

 

[TheBramble]

Oh Chomp - you are so on the money. YES!!!

 

[TheBramble]

If you're successful (or even just aware of) Poker I suspect you're trading days will be rosier than most.

In fact, just being aware of the Poker similarities will guarantee that - you never need to play a hand in your life!!!

You've already identified your strongest support - the SBs are already with you!

 

[ERA]

Hi all,

As I write, IG are quoting 423 for Gold in March, while today's spot price is 419. If I think that come June the dollar will have stiffed, debt bubbles will be bursting left right and centre and, generally speaking, gold will have gone up, I should go long. Fine. However...

It's the 423 figure that bugs me. It is a number arrived at by the market today regarding its expectation for March. My question is this: what value does my insightful reading of the currency and debt situations actually have?

What I mean to say is surely these judgements are already factored into the 423 figure? In other words, I should only bet of I consider that the market is underestimating the rises to come...after all, it has already spotted that by March 419 will have become 423, so surely this is for the same reasons I've spotted?

It would only become a good bet, then, if the 423, say, was merely an extrapolation of the level of CURRENT rate of rises in gold. Then I could say "Aha! The market expects gold to keep rising as it is but I (genius that I am :cheesy know through my reading of the currency/debt scenario that it's going to raise even more than that. Go long." No brainer.

I'm confused now and have lost my thread! Written down, my question looks silly, and I can easily imagine the answer is:
1. It depends on the market.
2. Work out the upward/downward trend and estimate if the market is merely extrapolating from this to get it's "future" prices and there is possibility of extra movement I can exploit.

Hmmmmmm....Have I answered my own question? Am I talking complete ****? Many thanks.

Cheers,

David.

Hi Dave,

I know you posted these questions a while back, but I noticed there is still plenty of room for answers to your good questions with no disrespect to Bramble.

In your example the SB's are indeed quoting a price for Gold deliverable in March based on the March Comex future price.

The difference in the spot and future price is know commonly as the 'carry'. This difference would equate to the costs of taking an ounce of gold and storing it till delivery in March. It would include costs of storage, insurance, the current US dollar interest rate less the rate at which gold is loaned out at and current sentiment. The longer the period till delivery the bigger the differential in price. As time goes by the futures price will converge on the spot price as less of the above costs are incurred in storage.

These price differentials are kept inline by arbitrage. If the prices get out of line by to much it may be possible to buy the spot gold sell the future as a hedge and store the gold till delivery for a profit. These actions would bring the prices back in line.

Hope thats answers some of your Q's Chomp.

Cheers