Financial Crisis and Banking Shares

An interesting report from paddypowertrader trader has landed on my desk. Despite spread betting having a reputation for catching investors out in extremely volatile markets the Irish firm has reported a 110% increase in clients placing equity trades in the past few days

Recent international market turmoil in the banking sector seems to have encouraged speculation rather than scare traders off.

To confirm the fact we asked Financial Spreads if they had seen an increase in activity. They had. Both from existing investors and speculators looking to open a spread betting account.

But is this sensible? What should we do after the Lehmans crash? The FTSE 100 has already broken the 5000 support level a number of times. According to Simon Denom of Financial Spreads “Investors will be hoping that the bounce from this level will support the view that a low has been reached but, in truth, the sensible thing for traders to do in the current scenario is to baton down the hatches, conserve your cash, and wait for the winds to die down. Many shares look extremely good value at current prices but I am sure that investors in Northern Rock, Merrill, Lehman and Bear Sterns thought the same thing just before they failed”.

I will take that as advice not to trade but what is the reality?

According to Davin McAnaney over at paddypowertrader “Compared to an average day we have seen an increase of 110% in banking shares trades, as well as those short selling both the UK and US indices. At the top of the list of those being traded are Merrill Lynch, AIG, Allied Irish Bank, Anglo Irish Bank, Barclays and Alliance and Leicester”,

“We have seen a huge increase in the number of trades compared to regular trading activity. Even though volatile markets such as these are difficult to predict, we have also seen a glut of clients taking profits from short selling the rapidly changing markets. US lenders Fannie Mae and Freddie Mac were the subject of nationalisation last week, but before they bowed out of the market they earned spread bettors going short quite a lot of money”.

Well it seems like the one place you should put your money is into your local spread betting company, they seem to be booming. However if that does not suit your needs then according to Denom, “In the current state of play the safest place for cash is no longer cash. Yields on AAA Short term Government Debt are falling like a stone as investors pull funds from the banks and search for a safer home. Oddly enough Northern Rock is now, probably, the safest place to have your hard earned in the UK”.

So it looks like we will be seeing more queues outside Northern Rock then.
Note that spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.