How to Trade Following Worse than Expected UK GDP Figures

LONDON, May 25, 2012 /PRNewswire/ --

The previously reported GDP contraction of -0.2% in the UK economy has been revised to -0.3% for the first 3 months of 2012, according to a report released by the ONS on Thursday 24 May. So, how can you potentially profit from this fall?

Financial Spread Betting Offers Profit Potential

Investors choosing to spread bet the financial markets as an alternative to traditional trading could be finding themselves with the opportunity to potentially gain from falls in the markets following the -0.3% contraction.

Key benefits of financial spread betting include:

• Ability to go long and short
• Access to over 12,00 financial instruments
• Leveraged trading
• Tax-free profits*

Revised Figures Show -0.3% Contraction in UK Economy

On Wednesday 23 April, an initial estimate released by the Office for National Statistics showed that UK GDP had shrunk unexpectedly by -0.2% between January and March this year, which followed a 0.3% contraction in the fourth quarter of 2011.

However, yesterday morning (Thursday 24 May), revised data showed that the UK economy had in fact shrunk more than expected by -0.3%.

How to Guide: Go Short in a Falling Market

Prior to the revised UK GDP figures being released at 9.30am BST this morning (Thursday 24 May), early morning trading saw the City Index UK 100 DFT fall from 5326.3 to 5268.3 between 8am and 9am - a fall of 58 points.

Using this as a working example, let us imagine that at 8am you watched the UK 100 DFT begin to fall through a chart on the City Index spread betting platform - you decided to take a sell position and go short on the market's future price movement.

Your stake was £10, and you sold at 5320.

When the market had fallen 20 points, you decided to take your profits.

To do so, you bought back at 5300 - netting you a tax-free* profit of £200. I.e. (5320 - 5300) x £10 = £200.

Had you let your sell trade continue until the market fell to 5268.3 - you'd have netted a tax-free* profit of £517. However, shortly after this 58-point fall at 9am, the market slowly started to rise and is now trading at 5360.5.

Therefore, had you let your trade run with the market moving against your position - you would have made a potential loss of £405. I.e. (5360.5 - 5320) x £10 = £405.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, financial spread betting.

*Spread betting is exempt from UK stamp duty and Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

SOURCE City Index