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Spread betting, day trading and futures explained in plain English

Have you ever been attracted by some of the more exciting financial opportunities often written about in the media? Spread betting, for instance? Day trading? Futures? Those promoting these st

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

rategies speak of the potential for massive gain. It is possible, they claim, to double, treble, quadruple your cash – or more – in the shortest possible time. The idea of making a vast profit in a matter of weeks, days, even hours, is – of course – extremely

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

empting. So this week I thought I would explain how these much publicised financial instruments work.

Spread betting has garnered a great deal of attention over the last few years. Its appeal lies in the fact that it allows you to bet cheaply on the rise or f

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

all of an asset without actually owning it. Historically, if you wanted to trade in different markets – such as international shares, indices, property or commodities – you had to use a variety of different methods to do so. Not with spread betting. You can ge

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

exposure to a market instantly, with only a small deposit – typically about 10% - 20% of the value of your bet. In other words, a ?1,000 bet could cost you as little as ?100. What’s more, there is no commission to be paid, no stamp duty on dealing and no tax

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

to pay on winnings.

How does it work? A spread betting firm will predict where an individual share or market will stand at a future date or period of time. They won’t name a specific price but rather an upper and lower range. This range is referred to as the

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

pread. You can then bet on the spread in one of two different ways. If you expect the share or market to be above the spread you can buy at the high end. If you expect the share or market to be below the spread you can opt for the low end. This is best explain

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ed with an example. Supposing a spread betting firm is quoting a spread of 6,100 – 6,110 for the FTSE 100 during January 2007. If you feel this is a bit pessimistic you might decide to bet ?100 a point above 6,110. Any time before the end of January you can cl

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

se your bet and take your gain or settle up your losses. Let’s say you are right and the index climbs 50 points to 6,160 at which juncture you close the bet. You will collect ?5,000 (50 points x ?100). Let’s say, on the other hand, you are wrong and the market

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

falls 50 points below the top end of the spread to 6060 (6,110 less 50). Your error of judgement is going to cost you ?5,000! Basically, the more the market moves in your direction the more you stand to gain and the more it moves against you the more you stan

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

to lose. It is possible to limit your losses by paying for something called a ‘guaranteed stop-loss’ but the cost is usually so high as to make the chance of gain almost impossible.

Day trading first came into the news about six or seven years ago as a metho

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

d by which small, private investors could make money from the stock market. The name says it all. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes the

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

own the stock, allowing them to lock in quick profits. It was the result of two phenomena. The first was greater market volatility with prices of some stocks – especially in the information technology sector – rising or falling by a substantial amount each da

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

y. The second was lower dealing charges allowing investors to buy and sell for a relatively low cost. At the heart of the concept is the idea that you need to close your position at the end of each trading day – taking your gains or losses then and there.

Put

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ing your money into a futures or commodity contract also holds out the promise of substantial gain. As with spread betting, commodity trading involves predicting the price of a particular commodity – anything from gold to frozen orange juice, and silver to por

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

k bellies – at a specific point in the future. And, as with spread betting, gearing plays a big factor in the activity. Its history, however, is rather more respectable. These contracts were originally a way for manufacturers to reduce their risk. For instance

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

in the days when silver was more important to the photographic industry than it is in this digital age a company like Kodak might contract to buy a set amount of the metal a year before they actually needed it at a pre-agreed price. On making the contract the

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

y would traditionally pay a deposit – usually 10% of the total contract value. Before long it was realised that this was a way in which anyone – not just manufacturers - might make a great deal of money. How? Like this. Let’s say you think silver is going to g

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

up in price. You pay ?10,000 to purchase a ?100,000 contract. If you are right and silver goes up 10% you make ?10,000 – doubling your money. On the other hand, if silver falls 10% you lose your ?10,000. And if it falls 20% you would lose an additional ?10,00

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

0.

You may have noticed that in describing these three different methods by which it is possible to make – or lose – a small fortune I have not once used the words ‘investment’ or ‘investor’. Spread betting, day trading and futures are all out and out gambles

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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