Commodities Spread Bet
The SpreadBets guide to Commodities Spread Betting:
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1. 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
- Metals: Gold, Silver, Copper, Platinum
- Softs: Coffee, Soybean, Soybean Oil, Live Cattle, Lean Hogs, Wheat, Cocoa, Sugar
When it comes to spread betting, the most traded commodities are crude oil and gold.
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
- In 2008, severe power shortages in South Africa threatened 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.
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.
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.
2. Where can I Financial Spread Bet on Commodities?
Commodities |
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| Gold Daily |
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| Gold Future |
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| UK Oil Daily (Brent) |
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| UK Oil Future (Brent) |
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| US Oil Daily (WTI) |
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| US Oil Future (WTI) |
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| Other Commodities |
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The above spread betting markets may also be available with other companies. Also see Comparison Table Notes.
3. How to Spread Bet on Commodities
As with many markets, you can spread bet on the future value of commodities. In this case you can bet on Gold:
a) Closing lower than $703.2, by 25-Sep-07, or
b) closing higher than $704.0 by 25-Sep-07
It is important to note that the Gold market, you trade in £X per point, where a point is $0.1 of Gold movement. eg if your stake was £4 per point and the Gold moves $5.00 then that would be a £200 difference to your profit / loss.
Commodities Spread Betting Example
So let's say you see the live price on a spread betting service like FinancialSpreads.com. At the time of writing it's quoting a spread of $703.2 - $704.0.
1) Let's say you think that Gold will close above the $704 mark on 25-Sep-07 (the expiry date)
2) You decide to 'buy' the market and invest £20 per point
3) The value of the market increases. You let the spread bet run until the expiry date
4) The market expires and gold close at $705.1
5) You bought the market at $704.0
6) P&L = ((closing level - opening level) / per point) x stake
7) P&L = (($705.1 - $704.0) / $0.1) x $20 per point stake
8) P&L = (1.1 / 0.1) x £20 per point stake
9) Profit = £220
But what if the market did not work out as expected? Perhaps the investors that originally looked risk averse have reinvested in equities rather than gold. If so, the Gold price could have gone against you and settled lower at $702.9. If that happened you would have made a loss on this spread bet
5) Buy price = $704.0
6) P&L = ((closing price - opening level) / per point) x stake
7) P&L = (($702.9 - $704.0) / $0.1) x £20 per point stake
8) P&L = (-1.1 / 0.1) x £20 per point stake
9) Loss = -£220
(Gold prices quoted - Aug 2007).
4. Where can I find Real-Time Commodities Spread Betting Prices?
All of the above companies provide access to real-time indices prices to their account holders.
Note that you may need to log into your account in order to see the live Commodities prices.
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Spread Bet on Indices, Forex, Commodities, Shares and more. For details see Financial Spreads.
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5. Where can I find Commodities Candlestick Charts?
A number of the spread betting companies offer a variety of charts, including candlestick charts. Note that you may need to open an account with the respective company in order to see the charts and/or have full access to real-time charts that you can manipulate. Spread betting accounts are subject to status, terms and conditions.
Candlestick charts are currently available with:
Charts may also be available from other spread betting companies.
Example commodities charts from Financial Spreads:
Naturally you can also access Candlestick Charts for other commodities eg Copper:
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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.
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"Commodities Spread Bet" last update by RThomas, 03-Feb-2012
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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