A Review of Spread Betting on Commodities Futures and Spot Markets

Spread Betting

Commodities Spread Betting


The SpreadBets guide to commodities spread betting:



About Commodities Spread Betting



Essentially, a commodity is a product whose market value fluctuates on a daily basis as a function of supply and demand. It is usual for such commodities to be bought and sold without differentiation of source or, in some cases, even quality.

Commodities are typically split into three categories:
  • Energies: UK Crude Oil (Brent Crude Oil), US Crude Oil (Nymex / WTI), Natural Gas, Heating Oil etc.

  • Metals: Gold, Silver, Copper, Platinum etc.

  • Softs: Coffee, Soybean, Soybean Oil, Live Cattle, Lean Hogs, Wheat, Cocoa, Sugar etc.
When it comes to spread betting, the most traded commodities are crude oil and gold.


Live Commodities Charts






You can also use the above chart for a number of other commodities including:
  • Gold, type 'XAUUSD'
  • Silver, type 'XAGUSD'
  • Copper, type 'Copper'
  • US Crude Oil (WTI), type 'USOil'
  • Brent Crude Oil, type 'UKOil'
  • Natural Gas, type 'NGAS'
  • Palladium, type 'XPDUSD'
  • Platinum, type 'XPTUSD'


Where Can I Spread Bet on Commodities?



Commodities

Financial Spreads ETX Capital Spreadex IG Index City Index
Gold Daily Financial Spreads Gold Daily ETX Capital Gold Daily Spreadex Gold Daily IG Index Gold Daily City Index Gold Daily
Gold Future Financial Spreads Gold Future ETX Capital Gold Future Spreadex Gold Future IG Index Gold Future City Index Gold Future
UK Oil Daily (Brent) Financial Spreads UK Oil Daily (Brent) ETX Capital UK Oil Daily (Brent) Spreadex UK Oil Daily (Brent) IG Index UK Oil Daily (Brent) City Index UK Oil Daily (Brent)
UK Oil Future (Brent) Financial Spreads UK Oil Future (Brent) ETX Capital UK Oil Future (Brent) Spreadex UK Oil Future (Brent) IG Index UK Oil Future (Brent) City Index UK Oil Future (Brent)
US Oil Daily (WTI) Financial Spreads US Oil Daily (WTI) ETX Capital US Oil Daily (WTI) Spreadex US Oil Daily (WTI) IG Index US Oil Daily (WTI) City Index US Oil Daily (WTI)
US Oil Future (WTI) Financial Spreads US Oil Future (WTI) ETX Capital US Oil Future (WTI) Spreadex US Oil Future (WTI) IG Index US Oil Future (WTI) City Index US Oil Future (WTI)
Other Commodities Financial Spreads Other Commodities ETX Capital Other Commodities Spreadex Other Commodities IG Index Other Commodities City Index Other Commodities
The above spread betting markets may also be available with other companies. Also see Comparison Table Notes.



Commodities Spread Bets

Why Trade Commodities?



Commodities trading is a particularly interesting form of investing due to the unique way in which prices are directly affected by supply and demand. The price of a commodity can be influenced by a variety of factors including:
  • The hurricane season in the US can increase the price of oil by reducing extraction and even refining rates and thereby reducing supply

  • Poor weather naturally affects crops such as coffee

  • Less obvious factors - severe power shortages in South Africa threaten to decrease gold extraction rates and, therefore, increased the price of the metal
These reasons make spread betting a useful tool when trading the commodities markets.

This form of trading allows an investor to bet on the price of a commodity to increase or decrease over time. If you think the price of crude oil will go up you can bet on it to go up. If you think the price of gold will go down you can bet on it to go down.

Foreign exchange rates can also have a big impact on the commodities markets. With spread betting, you can often trade in the currency of your choice. Having said that, it should be noted that commodities are generally priced in US Dollars. Therefore, even if you are trading in Sterling you can often see large commodities price movements just because the Dollar has gained on the Pound or vice versa.

A simple advantage of financial spread betting is the wide range of markets on offer. These include oil, gold, stocks and shares, currencies and stock markets like the FTSE 100 or Dow Jones. You can generally trade all these from the same account.

Whilst there are the tax free* benefits of spread betting on commodities there are of course drawbacks to trading these markets. Because spread betting is leveraged an investor can lose more than their initial stake. Nevertheless, the use of stop losses, combined with only risking money that you can afford to lose, can help to limit the potential downsides.



Where Can I Get Live Spread Betting Prices and Charts for Commodities?



The chart above gives a handy view of how the markets are performing.

Of course, for those trading commodities, the firms listed above offer real-time price updates and more customisable charts.

Example trading chart

Example candlestick chart



Gold Trading Example

Gold Futures Spread Betting Example



If you're interested in spread betting on gold then, looking at a platfrom like CapitalSpreads, at the time of writing you would get a quote of $1,294.4 - $1,295.0.

As a result, you could speculate on gold to go higher than $1,295.0 or to go lower than $1,294.4.

With spread betting, investors trade on every unit the market moves up or down; in the case of the gold market a unit is $0.1 of the metal's price movement.

Let's say, for this example, you want to bet £3 for every $0.1 gold rises or falls.


Speculating on the Market to Increase



If you bought gold at $1,295.0 and the metal rose then the quote might be re-priced at $1,298.9 - $1,299.5. If that happened, you might choose to close your bet for a profit at $1,298.9.

P&L = (final price of the market - initial price of the market) x stake per $0.1
P&L = ($1,298.9 - $1,295.0) x £3 per $0.1 stake
P&L = $3.9 x £3 per $0.1
P&L = £117 profit

Financial markets also move down, if the metal had decreased to $1,290.5 - $1,291.1, you may want to close your trade to limit your losses. Therefore, you would sell the market at $1,290.5.

You would do this with the same £3 per $0.1 stake:

P&L = (final price of the market - initial price of the market) x stake per $0.1
P&L = ($1,290.5 - $1,295.0) x £3 per $0.1 stake
P&L = -$4.5 x £3 per $0.1
P&L = -£135 loss


Speculating on the Market to Decrease



An advantage of financial spread betting is that you can short sell the markets, i.e. speculate that the markets will go down.

If you recall, initially the price was $1,294.4 - $1,295.0.

If you were to sell gold at $1,294.4 and the metal went down then you might see the price drop to $1,289.5 - $1,290.1. Assuming this was the case, you might choose to close your position for a profit by buying at $1,290.1.

P&L = (initial price of the market - final price of the market) x stake per $0.1
P&L = ($1,294.4 - $1,290.1) x £3 per $0.1 stake
P&L = $4.3 x £3 per $0.1
P&L = £129 profit

Markets do of course rise, if the metal were to rise up to $1,298.8 - $1,299.4, you may decide to close your bet to restrict your losses. If so, you would buy the market at $1,299.4.

Therefore, with the same £3 per $0.1 stake:

P&L = (initial price of the market - final price of the market) x stake per $0.1
P&L = ($1,294.4 - $1,299.4) x £3 per $0.1 stake
P&L = -$5.0 x £3 per $0.1
P&L = -£150 loss

  • Gold (December) spread betting prices quoted as of 25-Jul-14.
  • One thing to note is that this is a Futures market and therefore there is a predetermined settlement date when it will automatically be closed. In the case of this Gold (December) futures market the expiry date is 25-Nov-14.
  • For ‘daily’ example rather than a futures market see, how to spread bet on daily gold markets.

Advert Financial Spreads Spread Betting - No Fees, No Commissions, Free Charts and Live Prices.
Spread Bet on Indices, Forex, Commodities, Shares and more. For details see Financial Spreads.




Crude Oil Trading Example

Brent Crude Oil Spread Betting Example



If you decide to spread bet on Brent crude oil then, on visiting a platform like Capital Spreads, you may get a quote of $107.05 - $107.09.

As a result, you could bet on Brent crude oil to go higher than $107.09 or to go lower than $107.05.

With spread betting, you trade on every unit the market rises or falls; in the case of the Brent crude market a unit is $0.01 of the commodity market's price movement.

As an example, let's say you decide to stake £3 for every cent Brent crude increases or decreases.


Spread Betting on the Market to Increase



If you bought Brent crude at $107.09 and the commodity market rose then the spread might change to $107.52 - $107.56. Therefore, you might decide to close your position at $107.52.

Profit/Loss = (final price of the market - initial price of the market) x stake per cent
Profit/Loss = ($107.52 - $107.09) x £3 per cent stake
Profit/Loss = $0.43 x £3 per cent
Profit/Loss = £129 profit

However, if the commodity market decreased to $106.63 - $106.67, you could choose to close your trade to prevent further losses. If so, you would make a sell trade at $106.63.

With the same £3 per cent stake:

Profit/Loss = (final price of the market - initial price of the market) x stake per cent
Profit/Loss = ($106.63 - $107.09) x £3 per cent stake
Profit/Loss = -$0.46 x £3 per cent
Profit/Loss = -£138 loss


Spread Betting on the Market to Decrease



A benefit of placing a spread bet is that you can sell the markets, i.e. bet that the markets will drop.

If you recall, initially the market was priced at $107.05 - $107.09.

If you went short of Brent crude at $107.05 and the commodity market went down then you might see the quote drop to $106.65 - $106.69. If that were to happen, you might decide to close your trade by buying at $106.69.

Profit/Loss = (initial price of the market - final price of the market) x stake per cent
Profit/Loss = ($107.05 - $106.69) x £3 per cent stake
Profit/Loss = $0.36 x £3 per cent
Profit/Loss = £108 profit

However, if the commodity market had moved up to $107.40 - $107.44, you could close your trade to limit your losses. In that case, you would buy the market at $107.44.

You would close your bet with the same £3 per cent stake:

Profit/Loss = (initial price of the market - final price of the market) x stake per cent
Profit/Loss = ($107.05 - $107.44) x £3 per cent stake
Profit/Loss = -$0.39 x £3 per cent
Profit/Loss = -£117 loss

  • Brent Crude (September) spread betting prices quoted as of 25-Jul-14.
  • This is a 'Futures' market which has a specific expiry date when it will close automatically. For this Brent Crude (September) market the settlement date is 14-Aug-14.
  • For a US crude oil example see, how to spread bet on US crude oil.

Advert Financial Spreads Spread Betting - No Fees, No Commissions, Free Charts and Live Prices.
Spread Bet on Indices, Forex, Commodities, Shares and more. For details see Financial Spreads.



Commodities Practice Accounts



So what if you want to practice? The firms listed below also have free test accounts. These accounts let you have a go at trading commodities without risking any funds.

Financial Spreads   > Financial Spreads

InterTrader   > InterTrader



User Questions and Answers on Commodities Spread Betting



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Commodities Trading - 2009/2010 Case Study

According to Simon Denham of Capital Spreads, “The recent weakness of the US Dollar has certainly helped bolster the commodities futures markets. With most commodities, like Gold and Crude Oil, priced in dollars, any dollar weakness can help boost the commodity prices.

“Gold has shot up to $1,100 level. Whilst the price may have gone a bit too far, too quickly, the trend is firmly in favour of the bulls. Of course, if there is any currency strength it could quickly return the $900 level.

“Oil, is a different kettle of fish. When the price hovers around the $70-$80 level then it is firmly at the price level that OPEC is looking to achieve.

“There is some pressure though on the oil market to continue higher. Forecast price upgrades have been released by both the US Energy Department and Credit Suisse. Both forecasts point to higher prices through 2010, citing the main drivers as rising demand and falling inventories.”

However, it is not a clear one-way bet. If the US Dollar finds some strength then that could weaken the oil price.

What should an investor do? First they should note that all forms of speculation or investment, from trading stocks and shares to having a pension to buying a house, have a negative side.

Spread betting does provide some interesting opportunities with both the oil and the gold spreads markets. Note though that if you spread bet you can lose more than you initially staked.



'Commodities Spread Betting' last update by James White, 20-Feb-2017





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