Spread Betting On Commodities

The main commodities offered by spread betting companies include Energy (oil, gas), Metals (gold, copper, etc.) & Softs (coffee, live stock, wheat, etc.), although some other commodities that fall outside these categories may also be offered.

By their nature, commodities can be quite volatile and unpredictable for one of many reasons including severe weather, disease, war, fear, and other natural and man made factors that can affect supply chain. For this reason, trading commodities can offer great profits, but also serious losses if a bet goes against you. We do not recommend opening positions on commodities if you are just starting out in spread betting.

In addition to the above factors, as prices in commodities are quoted in dollars you'll find most commodities will rise in the advent of a weakening dollar.

When betting on a commodity such as oil or gold (perhaps the most traded of the commodities), you are predicting its future price which will be based around some quantity or weight such as by the ounce, kilo, or barrel. Before spread betting came about, being able to bet on the movement of commodities was inaccessible to most personal investors due to the large sums of money required to buy the future contracts.

Simple Commodity Trade Example

• Spread Bet Gold

  Spread betting on gold has long been profitable for many commodity traders. It was in fact IG Index who came up with the concept of financial spread betting to allow speculation on the price of gold way back in 1974.

  An example gold spread bet:

  • Generally 1 point (tick/pip) is considered $0.10 when trading gold (gold is quoted in dollars per troy ounce, but you can bet per point movement in your own currency).
  • Given the current climate, you believe the price of gold is in no hurry to come down, and decide to open a bet by going long (buying).
  • After looking at the options of a rolling daily spread bet, an April contract or a June contract, you decide to open a position based on a June contract.
  • You can of course exit the bet anytime by selling (closing your position) , you do not have to see it out until the end of June.
  • IG Index quote a price of $878.70 - $879.30. You decide to buy, so you take the buy price of $879.30 at $3 a point. The spread is 6 points, and it's only until it moves by more than this amount that you are in profit. Effectively, whenever you open a spread you'll always be at a loss until it moves in your favour by at least the amount of the spread.
  • Gold goes up steadily, and at $930.70 quoted as the sell price, you decide to take your profit and close your bet ahead of its June expiry date.
  • Your profit is calculated at: $930.70-$879.30 = $51.4 increase. $51.4 = 514 point movement * £3 = £1,542 profit (although gold is quoted in dollars, you can bet in your chosen currency per point movement).

• Spread Bet Oil

  Perhaps the best known commodity, we're always hearing how the price of oil per barrel has gone up due to a potential conflict somewhere or the increase in demand from some growing economy. Almost as quickly as it goes up however, oil can also drop back down when some oil producing country announces their upping of production or some political situation or conflict seems to take a turn for the better. These events and the changes to the price of oil produce the sort of volatility that traders love.

  The two main oil futures that you'll be offered are West Texas Intermediate (WTI) and Brent Crude Oil. WTI may appear under other names such as 'US Light Crude Oil' or similar. Brent Crude Oil comes from the North Sea, while WTI comes mainly from the Midwest and Gulf Coast areas of the U.S.

  An few oil spread betting examples:

  • Example 1: Brent Crude oil is trading at $90.33 a barrel. You buy (go long) at £5 per point movement and close your bet out (sell) at $102.50 after a couple of weeks trading. Based on £5 per point/pip movement that gives you a £6,085 profit.
  • Example 2: A short while later you think the price of Brent Crude oil is due to come down, so you decide to short it (sell) at £5 per point. You get in for $105.20 and, as predicted, the price falls. You decide to close your bet so you buy (you always do the opposite of your opening bet in order to close) at $98.40 a barrel. This gives you a profit of £3,400.
  • Example 3: Feeling like things are going well you decide to up your bet to £10 a point and decide to buy (go long) at £77.32 a barrel on the assumption that oil is at its cheapest for sometime, so the only direction for it is up. A short time later, oil has continued its drop in price and trades at $69.70 a barrel. You quickly exit your bet realising your bad judgment. You have just made a loss of £7,620.

  Although hypothetical bets, Example 3 was included to illustrate that it really is just as easy to loose as it is to make money, if not easier. Another reason for Example 3 is that it highlights a couple of glaring errors. 1) Over confidence from a couple of good bets, so you decided to double your usual stake. 2) You saw that oil was at its lowest price point for a while so decided to go against the market (you took a punt, not an informed decision), and 3) You could have set up a stop loss in order to minimise your losses, and to exit your bet at an earlier time.

List Of Common Commodities

You can trade many commodities online, below is an example list of the commodities that IGIndex.co.uk currently offer via their spread betting platform: