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Spread Betting on Commodities |
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Where to Spread Bet on Commodities
You can spread bet on Commodities with the following companies:
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| Gold (spread size) |
4 |
5 |
5 |
4 |
3†† |
4 |
4 |
| UK Crude Oil (spread size) |
5 |
5 |
4 |
4 |
3.5†† |
4 |
5 |
| Commodities (min stake) |
£1 |
£1 |
£1 |
£1 |
£1 |
£0.50 |
£1 |
| Commodities (more available) |
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Commodities spread betting may also be available with other companies - notes.
Commodities Spread Betting - Market Review
Spread Betting on Commodities - 22 February 2012
The Greek bailout ignited the feel good factor in the commodities spread betting markets and sent gold soaring $24.6 to close at $1758.6, not far off the highest level, $1763.2, seen since last November.
Already though investors are having doubts over the new deal and these doubts will test the strong performance seen over the last few days. Currently, the precious metal is trading down at $1756.9.
Like gold, energy markets were buoyant and crude prices were sent higher. Considering though that most of the boost came towards the settlement, it could mean that the main driver for black gold is still the situation between Iran and the West. At time of writing, Brent is trading flat on the day at $121.64.
Spread Betting on Commodities - 21 February 2012
Gold benefited from the bailout deal, allowing the yellow brick to post a gain of $10.7 to close the day at $1733.5, also helped by traders dumping safer assets such as the US dollar.
Another factor in the rally came from investors using the precious metal as a hedge against inflation as China refocused on its economic growth policy, which bears the risk of allowing inflation to make a comeback. Currently, gold is continuing its gain and is trading up at $1740.0.
Black gold had a quiet trading session with the US markets closed due to President’s Day.
Crude prices had a small rally on the back of hopes that a decision in Brussels over Greece’s future wasn’t far off. In addition, confirmation from Iran that oil exports to the UK and France will be stopped raised concerns of further supply disruptions.
At time of writing, the Brent crude oil spread betting market trades at $119.87.
Spread Betting on Commodities - 20 February 2012
Gold spreads were given a boost in early trading on Friday as US inflation rose 0.2% in January compared to last month. However, this hike was short lived as investors were faced with a long weekend due to the Presidents Day holiday in the US.
As a result, profit taking was the name of the game causing the yellow brick to end the session down $4.6 at $1723.1. At time of writing though, it’s started the week on a positive note and is trading up at $1730.6.
This morning energy markets are being propped up by the Iranian stand off with the West.
News that they have halted oil exports to the UK and France has caused Brent crude oil to spike back above the $120 a barrel mark, having been as high as $121.00 earlier this morning.
Currently, Brent stands at $120.50 with the near term uptrend still looking firmly in tact.
Spread Betting on Commodities - 17 February 2012
Gold found some short term support at $1710, once again bouncing back to over $1720 and this morning is at $1731 as it enjoys the same strength that indices are seeing.
The precious metal has yet to break to new highs and doubts still remain about the recent rally but this morning's strength indicates that the bulls haven't given up the fight yet.
Targets to the upside are seen at $1737, $1742 and $1752 meanwhile support is seen at $1705 and $1692.
Spread Betting on Commodities - 16 February 2012
The gold spread betting market has also suffered a little from directionless trade. We’ve highlighted before that the recent inability to take out the highs around $1760 is starting to make some of the bulls nervous.
The fear is that this could be the beginning of a greater correction to the downside, into the sub $1700 region. This morning the yellow brick is some $10 softer at $1715.
Brent has bucked the trend of other risk assets after being assisted by the rhetoric coming out of Iran who are threatening to stop exports to Europe.
This saw the black stuff rally to above and beyond the $119 level, however this morning the bulls cannot prevent the risk aversion from affecting them as Brent currently trades lower at $118.55.
Spread Betting on Commodities - 15 February 2012
On the commodities markets, doubts that Greece will be able to uphold its side of the belt-tightening deal proved to be good resistance for gold yesterday, with investors searching for safety in the US dollar.
On one side of the see-saw is fear that the situation with Greece could still be contagious, and thus create liquidity problems in the market place. However, on the other side, if the European nation gets another break, investors could see the yellow brick resume its upwards trend.
Overall, gold lost $1.8 to close at $1720.5, but at time of writing the bulls seem to be heavier with the precious metal up at $1727.5.
Europe’s biggest economy, Germany, posted a better than expected economic sentiment figure yesterday giving traders a boost of confidence and allowing them to ignore Moody’s Investor Services downgrade on a number of Eurozone credit ratings.
This in turn provided good support for crude oil, which was also given a leg up as Israel accused Iran of attacks on its diplomats abroad.
Spread Betting on Commodities - 14 February 2012
The gold spread trading market is starting to look a little bit worrying for the bulls at the moment. Rallies are short lived and the yellow brick simply can’t seem to get beyond its recent highs around $1760.
At $1715 this morning it seems to be finding a little bit of support for now but the key levels are seen at $1704 and $1692 to the downside being support with $1733 and $1742 to the upside being resistance.
Brent crude oil dipped in line with the shares spread betting markets yesterday, taking it back below $117, but this morning it is just testing that level as it trades at $116.90 at the time of writing.
The battle between bulls and bears is very fractious at the moment as the Iran issue continues to support the price, whereas the credit rating downgrades today keep a lid on the gains.
Spread Betting on Commodities - 13 February 2012
The bulls spread betting on gold to rise were fighting a losing battle against the dollar during Friday’s trading as investors cashed in on profits ahead of the weekend.
Another reason for the slump was the requirement to cover margin calls in the falling equity markets, meaning that traders were closing out of the precious metal to free up money.
No one will forget the lingering issue with Greece and this means that risk adverse participants have been pushed out to the sidelines while the volatility remains, despite gold being used as a hedge in previous times of trouble.
So by the end of the day, the yellow brick had shed $8.1 to close at $1721.3, which at time of writing has been reversed and now the level sits at $1731.1.
Much like gold, a higher US dollar combined with a lower equity market meant that crude oil struggled to make ground in Friday’s session.
Adding to the fire was a lower revision in the global demand for oil in 2012 by the International Energy Agency, also mentioning that a loss on Iranian crude supplies can easily be replaced. Currently Brent sits at $117.67.
Spread Betting on Commodities - 10 February 2012
Gold has had a bit of a see saw action in the past couple of days. After testing $1760, down to $1720, up to $1750 and now back down to below $1720 this morning.
Over the short term a little concern for the bulls to see gold fail to make a higher high as the most recent bounce failed to take out the $1760 at two attempts, so are the bulls drying up?
It will be interesting to see how the action pans out today and whether support around $1710 to $1700 will hold, because if not we might see a drive lower towards $1680.
Spread Betting on Commodities - 09 February 2012
On the commodities spread betting markets, gold recovered to the $1750 level and looked like it was going to head beyond its recent highs. However, its fuel just ran out and it dipped back to the mid $1720s.
This morning the yellow brick is at $1734 looking evenly poised as the bulls weigh up whether the momentum is there to lift it beyond the recent highs around $1760.
Brent had another strong day being lifted above $117. Slowly but surely the commodity is making its way back towards the highs of 2011 when we saw $125 a barrel, which is not a great sign for motorists or even the wider economy for that matter.
Spread Betting on Commodities - 08 February 2012
Gold enjoyed a strong bounce yesterday as it looks to be reversing recent weakness and turning what looked to be rather bearish near term signals back into bullish ones.
As yet another dip looks to have turned into a buying opportunity for the bulls the yellow brick is trading back at $1750 having reached a low at around $1710 yesterday.
Gold spread betting analysis suggests that near term support and resistance are seen at $1735/30/25 and $1755/64/75 respectively.
Brent crude oil is looking pretty perky this morning as it puts on another 50 cents, taking it to near the $117 level which it was above towards the end of yesterday.
This morning Brent is at $116.70 and traders will be keeping a keen eye on those inventory numbers later today.
Spread Betting on Commodities - 07 February 2012
On the commodities spread betting markets, the bears seem so be outweighing the bulls on the gold see-saw and yesterday saw a further retracement in the precious metals price. Concerns over the Greek sovereign debt sent investors fleeing into the safety of the US dollar.
After a powerful rally in January, it seems that traders’ worries have been grounded and the realisation that at any moment something nasty could materialise in the Eurozone means that we’re seeing regular bouts of profit taking.
So by the end of yesterday’s session, gold had lost $4.8 to close at $1720.1, which at the time of writing has been added back on with the yellow brick, trading back up at $1725.4.
Friday’s strong rally could not be kept up yesterday and the optimism over heightened demand for US crude oil, on the back of increased jobs, was washed away.
On the other side, Brent posted a gain with a report of increased demand from Asia and also an embargo on Iranian oil pointed to concerns over supplies in Europe. This morning Brent trades at $115.85.
Spread Betting on Commodities - 06 February 2012
After the surprisingly better than expected US NFP figure, investors started banking their profits in gold and reinvesting into riskier assets, happy to ride the wave of optimism that was engulfing the markets.
Consequently, the precious metal lost $33.2, bringing it down to $1725.8 meaning that the week’s gains were wiped off and thus changing the outlook to neutral.
At time of writing, the yellow brick trades down further still at $1724.9, in line with weaker equity markets and since the break below some near term technical levels, a few of the bulls are having their nerve tested.
The pessimistic views relating to the energy sector that had been rife in the markets were soon reversed on Friday after the US employment data came out.
The rise of 243k jobs was much higher than the expected figure of 150k, which pushed the unemployment rate lower to 8.3%, the best figure since February 2009.
This brought investors to the belief that demand will be raised and in turn, caused a hike in the price of a barrel of oil.
Brent crude oil got itself back above the $114 level but this morning it’s struggling to hold onto that ground as it trades at $114.00.
Spread betting and CFD trading carry a high level of risk and you can lose more than your initial deposit so you should ensure spread betting or CFD trading meet your investment objectives and if necessary seek independent advice.
Market Commentry from Financial Spreads.
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Financial Spreads - tax free* trading on over 2,500 spread betting markets. With a Financial Spreads Account you can trade commission free, 24 hours a day on stock market indices, forex, shares commodities and...read review » Financial Spreads.
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Introduction to Commodities Spread Betting
A commodity is, essentially, a product whose market value fluctuates on a daily basis due to supply and demand. It is usual for such commodities to be traded without differentiation of source or, in some cases, quality.
Commodities are typically split into three categories:
- Metals: for example Gold, Silver, Platinum & Copper
- Energies: for example UK Crude Oil (also known as Brent Crude Oil), US Crude Oil (also known as Nymex and WTI), Natural Gas & Heating Oil
- Softs: for example Coffee, Cocoa, Sugar, Live Cattle, Soybean, Soybean Oil, Wheat & Lean Hogs
When it comes to financial spread betting, the most traded commodities are crude oil and gold.
Commodities trading is a particularly interesting form of investing because of the unique way in which prices are directly affected by supply and demand. The price of a commodity can be influenced by various factors including:
- Poor weather naturally affects the supply and therefore affects the price of crops such as Coffee, Wheat and Sugar
- The hurricane season in America can increase the price of Oil by limiting extraction and refining rates, therefore reducing supply
- In 2008, severe power shortages in South Africa threatened to decrease Gold extraction rates which led to an increase in the price of the yellow metal
- In 2010, the Enbridge Energy pipeline, which supplies Canadian Oil to America's Mid-West, closed for 8 days. The reduction in supply saw a temporary spike in Oil prices
These reasons make financial spread betting a useful tool when speculating on the commodities markets.
Note that foreign exchange rates can also have a big impact on the commodities markets. With financial spread betting, you can often trade in the currency of your choice. That said, 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 due to fluctuations in the GBP/USD exchange rate
Whilst there are the tax free* benefits of financial spread betting on commodities there are of course drawbacks to trading these markets. Because financial spread betting is leveraged, an investor could lose more than their initial stake.
Nevertheless, the use of a Stop Loss order, combined with only risking money that you can afford to lose, can help to limit the potential downsides. Be aware though that not all Stop Loss orders are guaranteed.
How to Spread Bet on Commodities
As an example, let's suppose that you want to speculate on Gold, you go on a spread betting website, e.g. CapitalSpreads, and see the market price of:
Here's an example of how it works.
| The Spread Betting Market | Gold Rolling Daily |
| Spread | $1,742.7 - $1,743.1 |
| How the Market Works | Now you can spread bet on the Gold Rolling Daily market moving:
 Higher than $1,743.1, or
 Lower than $1,742.7
This is a Rolling Daily spread bet which means that there is no expiry date for this trade. If you don't close your position and the session ends then your trade will automatically roll over to the next trading session.
If a trade rolls over then you will either receive or be charged a small fee for overnight financing depending upon whether you are betting on the market to increase or decrease.
For more details see Rolling Spread Bets. |
| Units Traded | Spread bets on the Gold market are made in £x per $0.1.
Where $0.1 is 10¢ of the metal's price movement.
E.g. if Gold changes by $3.50 then you would lose or gain 35 multiples of your stake. |
| Stake per Unit | You choose how much you are going to trade per $0.1, e.g. £1 per $0.1, £5 per $0.1, £10 per $0.1 etc. |
| Brief Staking Example | For example, if your stake is £5 per $0.1 and Gold moves by $2.00, you would lose or win £5 per $0.1 x $2.00 = £100. |
Worked Trading Example | Going Long of Gold
Spread betting on the metal to increase in value
| You Now Work Out Whether to Go Long or Short |
Gold to go:
Higher than $1,743.1? or
Lower than $1,742.7?
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| Let's Assume You Buy | Higher than $1,743.1 |
| You Select How Much to Risk, Let's Say You Opt For | £2 per $0.1 |
| So Now What? |
- You make a gain of £2 for every $0.1 Gold climbs higher than $1,743.1
- You lose £2 for each $0.1 Gold drops lower than $1,743.1
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| If You Are Spread Betting on a Market to Increase Your Profits/Losses = | (Closing Price - Opening Price) x stake per $0.1 |
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| Trading Example 1 | Gold moves higher and the spread trading market becomes $1,749.6 - $1,750.0. |
| Time to Lock in a Profit? | You may choose to keep your gold bet open or close it, i.e. close your trade to lock in your profit. In this example you opt to close your bet and sell at $1,749.6. |
| Your Profits/Losses = | (Closing Price - Opening Price) x stake per $0.1 |
| ($1,749.6 - $1,743.1) x £2 per $0.1 |
| $6.5 x £2 per $0.1 |
| Your Profits/Losses = | £130 profit |
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| Trading Example 2 | Gold slips and the financial spread betting market is revised to $1,737.4 - $1,737.8. |
| Close and Restrict the Loss? | At this point, you can choose to let your spread bet run or close it to restrict your loss. In this example you decide to close your trade and sell the market at $1,737.4. |
| Your Profits/Losses = | (Closing Price - Opening Price) x stake per $0.1 |
| ($1,737.4 - $1,743.1) x £2 per $0.1 |
| -$5.7 x £2 per $0.1 |
| Your Profits/Losses = | -£114 loss |
Worked Example | Taking a Short Position on Gold
Financial spread betting on the metal to go down
| You Now Decide Whether to Go Long or Short |
Gold to move:
Higher than $1,743.1? or
Lower than $1,742.7?
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| You Might Decide to Go Short | Lower than $1,742.7 |
| You Decide Your Stake, Let's Say You Choose | £1 per $0.1 |
| So What Happens Now? |
- You lose £1 for each $0.1 Gold moves higher than $1,742.7
- You make a profit of £1 for each $0.1 Gold falls below $1,742.7
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| When Betting on a Market to Go Down Your Profits/Losses = | (Opening Price - Closing Price) x stake per $0.1 |
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| Trading Example 3 | Gold decreases and the spread betting market moves to $1,733.2 - $1,733.6. |
| Close and Take Your Profit? | You could decide to leave your gold bet open or close it to take your profit. For this example, you opt to close your trade and buy the gold rolling daily market at $1,733.6. |
| Your Profits/Losses = | (Opening Price - Closing Price) x stake per $0.1 |
| ($1,742.7 - $1,733.6) x £1 per $0.1 |
| $9.1 x £1 per $0.1 |
| Your Profits/Losses = | £91 profit |
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| Trading Example 4 | Gold rises and the market is adjusted and moved to $1,750.2 - $1,750.6. |
| Time to Limit Your Loss? | At this point, you may opt to leave your position open or close it in order to limit your losses. In this instance you opt to close your position by buying at $1,750.6. |
| Your P&L = | (Opening Price - Closing Price) x stake per $0.1 |
| ($1,742.7 - $1,750.6) x £1 per $0.1 |
| -$7.9 x £1 per $0.1 |
| Your P&L = | -£79 loss |
Gold Notes:
- Spread trading market prices taken from CapitalSpreads, 2 November 2011
- Investors could also choose to spread bet on Gold in euros/$0.1 move and dollars/$0.1 move
- Financial spread betting also lets you trade on a wide range of other asset classes, for more information see:
Financial Spread Betting on Crude Oil Futures
Let's assume that you are considering spread betting on Crude Oil Futures, so you look at a spread trading website, such as FinancialSpreads.com, and they are offering the current quote at:
This is what you can expect from a futures spread betting market
| The Spread Betting Market: | Crude Oil Futures (March) |
| Spread: | $99.84 - $99.89 |
| How This Works: | You can speculate on the Crude Oil Futures market settling:
Above $99.89, or
Below $99.84
At the close of trading on the expiry date for the 'March' futures market, 17 February 2012.
Be aware that, because this is a futures market, your position will be automatically closed when the March Crude Oil Futures markets expire, 17 February 2012. Nevertheless, you can close your spread bet before the closing date.
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| Trading Units: | Spread bets on the Crude Oil Futures market are made in £x per cent.
Where a cent is $0.01 of the commodity's price movement.
E.g. if the Crude Oil Futures market moves by 40¢ ($0.40) then you would win or lose 40 times your stake. |
| Stake per Unit: | You decide how much you would like to risk per cent, e.g. £2 per cent, £5 per cent, £8 per cent, £10 per cent etc. |
| Brief Staking Example: | If, for example, your stake was £3 per cent and the Crude Oil Futures market moves by $0.24 (24¢), you would win/lose £3 per cent x 24¢ = £72. |
Spread Betting Example | Taking a Bullish View of Crude Oil Futures
Spread betting on Crude Oil to increase in value
| You Decide to Go Long or Short: |
Where do you feel that the Crude Oil Futures market will finish at on 17 February 2012:
Above $99.89? or
Below $99.84?
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| Let’s Assume You Go Long: |
Above $99.89 |
| You Decide How Much to Risk, Selecting: | £2 per cent |
| What Happens Next? |
- You make a profit of £2 for each cent ($0.01) the Crude Oil Futures market settles above $99.89
- You will lose £2 for every cent ($0.01) the Crude Oil Futures market closes lower than $99.89
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| If You Are Betting on a Market to Rise Your Trading Profits or Losses = | (Final Price - Opening Price) x stake per cent |
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| Situation 1 | The price of a barrel of Crude Oil rises and the quote for the futures market is moved to $100.34 - $100.39. |
| Close and Take a Profit? | You can choose to keep your futures spread bet open until expiry or close it to lock in your profit. For this example, you decide to close your trade at the current price by selling the market at $100.34. |
| Your Trading Profits or Losses = | (Final Price - Opening Price) x stake per cent |
| ($100.34 - $99.89) x £2 per cent |
| $0.45 x £2 per cent |
| 45¢ x £2 per cent |
| Your Trading Profits or Losses = | £90 profit |
| | |
| Situation 2 | The Crude Oil Futures market moves lower and the spread trading market changes to $99.52 - $99.57. |
| Close and Restrict Your Loss? | You may choose to keep your futures spread bet open until expiry or close it, i.e. close your spread bet and restrict your loss. For this example, you decide to settle your bet at the current market price and sell at $99.52. |
| Your Trading Profits or Losses = | (Final Price - Opening Price) x stake per cent |
| ($99.52 - $99.89) x £2 per cent |
| -$0.37 x £2 per cent |
| -37¢ x £2 per cent |
| Your Trading Profits or Losses = | -£74 loss |
Worked Trading Example | Going Short of Crude Oil Futures
Spread trading on the price of the Crude Oil market to fall
| You Now Work Out Whether to Buy or Sell: |
Where do you feel the Crude Oil Futures market will settle on 17 February 2012:
Above $99.89? or
Below $99.84?
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| Let's Say You Choose to Sell: |
Below $99.84 |
| You Decide Your Stake, Opting for: | £3 per cent |
| So What Happens Next? |
- You will lose £3 for every cent ($0.01) the Crude Oil Futures market closes above $99.84
- You make a profit of £3 for every cent ($0.01) the Crude Oil Futures market closes below $99.84
|
| If You Go Short With a Spread Bet Your Trading Profits or Losses = | (Opening Price - Final Price) x stake per cent |
| | |
| Situation 3 | The price of Crude Oil falls and the spread betting futures market is adjusted to $99.41 - $99.46. |
| Time to Lock in a Profit? | At this point, you could opt to keep your futures trade open until expiry or close it, i.e. close your trade to lock in your profit. In this example you opt to settle your bet and buy at $99.46. |
| Your Trading Profits or Losses = | (Opening Price - Final Price) x stake per cent |
| ($99.84 - $99.46) x £3 per cent |
| $0.38 x £3 per cent |
| 38¢ x £3 per cent |
| Your Trading Profits or Losses = | £114 profit |
| | |
| Situation 4 | The Crude Oil Futures market climbs and the spread betting market adjusts and moves to $100.11 - $100.16. |
| Close and Restrict the Loss? | At this point, you can decide to keep your bet open until expiry or close it to restrict your loss. In this case you choose to settle your trade at the current rate by buying at $100.16. |
| Your Trading Profits or Losses = | (Opening Price - Final Price) x stake per cent |
| ($99.84 - $100.16) x £3 per cent |
| -$0.32 x £3 per cent |
| -32¢ x £3 per cent |
| Your Trading Profits or Losses = | -£96 loss |
Crude Oil Futures Notes:
- Crude Oil Futures quote as per FinancialSpreads.com: 31 January 2012
- Many spread betting companies also allow you to spread bet on Crude Oil Futures in euros per cent and US dollars per cent
- Financial spread betting also lets you access a broad range of other markets. To learn more also refer to:
Where to Trade Commodities Tax Free*
You can speculate on Commodities tax free* with the following spread betting companies:
Spread Betting on Commodities - Fundamental Analysis
According to spread betting firm InterTrader, with commodities trading, there are mainly two groups of traders, those who:
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A) Use technical analysis to guide their trading activities, or
B) Believe that fundamental analysis is the only reliable way.
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There is, however, also a smaller group of spread betting investors who use both types of analysis to aid their trading decisions.
Those who use technical analysis believe that the price of a trading instrument at any particular moment already incorporates all major news reports. As a result, 'trading on the news' would result in you forever chasing the price.
Traders who trust in fundamental analysis, on the other hand, believe that there is no way to predict future price behaviour by simply using statistical formulas that rely on past prices.
They regard fundamental economic issues, such as GDP, inflation, supply and demand as vital to the price of any trading instrument.
Spread Betting on Commodities - Fundamental and Technical Analysis
At SpreadBetting.org we aim to help all forms of financial spread bettor, from the novice investor to the experienced trader, regardless of which form of analysis they choose to use.
For the latest commodities technical analysis see:
Also for the most up-to-date fundamental news and commentary on the commodities markets:
Spread Betting on Commodities News
If you study past price behaviour of commodities such as agricultural products and oil, it does become clear that there is a correlation between price and a variety of factors.
The problem with using this to guide your trading is that it is very hard to attach an accurate weighting to any specific factor.
News of a major oil discovery in one part of the world should, under normal circumstances, result in a drop in the oil price. However, this might be completely offset by news of strong economic growth in a major world economy which is likely to result in increased demand for oil.
Nevertheless, if you do decide to trade commodities by taking into account fundamental analysis, what type of information should you be considering?
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InterTrader - an InterTrader account offers spread betting and CFDs on thousands of global markets. InterTrader provides 24 hour trading with no brokers' fees and no commissions. There is also mobile trading, live charts and...read review » InterTrader.
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Spread Betting on Commodities - Supply Analysis
Any major news that negatively affects the supply of a particular commodity will, all things being equal, tend to push up the price of that commodity.
Such factors may vary from a civil war in a major oil producing country to news from the weather bureau about a pending drought which might affect the supply of coffee.
Even news about a major disaster hitting a large oil refinery could exercise significant upwards pressure on the price of crude oil, since it might well negatively affect supply in the near future.
Gasoline stocks typically decrease in the Spring as refineries undertake seasonal maintenance. Also crude oil firms will often reduce Winter-gasoline inventories in order to start stocking cleaner burning Summer-blends.
Also, as mentioned, any news factors that could cause a significant increase in supply levels, such as a major oil discovery or exceptional weather/harvests, could weigh on price levels.
Commodities Analysis and Stock Levels
Most countries keep stockpiles of important commodities such as oil and agricultural products as well as precious metals such as gold.
It makes sense that if a report suddenly reaches the market that US stockpiles of natural gas are being depleted because of a long spell of cold weather, it will have the immediate effect of pushing up the price of natural gas.
Conversely, large or increasing stockpiles will tend to put downward pressure on prices.
Figures for US stockpiles of petroleum, crude oil and natural gas are often published weekly. Many traders use these in conjunction with other market news to guide their trading activities.
Spread Betting on Commodities - Demand Analysis
The price of a commodity is the balance between supply and demand at that particular moment.
If news should reach the market that a very cold winter is expected in the Northern Hemisphere, we can expect the price of heating oil, and possibly crude oil, to increase.
Unfortunately, real life trading is seldom that simple. If the European Central Bank should, at the same time, issue a warning about a looming recession in the EU, the net effect could well be for the price of oil to decline in anticipation of weaker overall demand.
Commodities Prices and the Forex Markets
The foreign exchange markets can also have a major impact when spread betting on commodities. Most commodities are priced in US dollars and therefore those markets are irrevocably linked to the US currency.
Any news that could lead to a weaker dollar, for example, could push up the price of that commodity.
By contrast, an increase in US interest rates might cause a jump in the value of the dollar. This would make the commodity relatively more expensive in terms of other currencies and so the price may decline to compensate.
Spread Betting on Commodities Trading - Case Studies
Brent Crude Oil - August 2011
Looking at Inter Trader's daily Brent crude oil candlestick chart below, on the 3rd and 4th of August 2011 the price of a barrel of Brent crude oil fell from $115.70 to a low of $107.00. What caused this major drop?
If we review the global news for that week, we see newspaper headlines such as: “Asian markets tumble on Euro fears and US losses.” and “Dow Jones index falls by 512 points in largest one-day fall since late 2008.”
This shows that the financial news at the time portrayed a very gloomy and negative outlook for the world's major economies. Such weakness would negatively affect future demand for crude oil and this is what caused the decline in price.
Sugar - October 2011
Looking at the daily sugar candlestick chart below, we can see that the price of sugar fell from $27.13 on the 28th of October to a low of $25.28 three days later. Why did this happen?
One significant factor seems to have been that Brazil, the world's largest sugar producer, saw better than expected output. This, along with weaker than anticipated demand from the food manufacturing and preparation sectors, encouraged a drop in prices.
'Spread Betting on Commodities - Fundamental Analysis' - review written by InterTrader.
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With financial spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital. Please familiarise yourself with the risks that are involved and before trading, ensure that financial spread betting matches your investment objectives. Seek independent advice where necessary.
Spread Betting on Commodities - edited by MJ, 22 February 2012.
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With spread betting you can lose more than your original stake or investment. Spread betting carries a high level of risk to your capital so please familiarise yourself with the risks that are involved and, before trading, ensure that spread betting matches your investment objectives. Seek independent advice where necessary.
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* Based on current UK tax law. Tax law may change and can differ depending on your personal circumstances.
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