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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 |
4 |
4 |
4 |
| UK Crude Oil (spread size) |
5 |
5 |
4 |
4 |
6 |
4 |
5 |
| Commodities (min stake) |
£1 |
£1 |
£1 |
£1 |
£0.50 |
£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 - 21 May 2012
Gold continued its rebound on Friday, gaining $18.73 to $1,592.90 as bargain hunters came into the market.
The weaker US currency was the main reason behind the rally, as it made the dollar denominated gold market look cheaper.
It’s also possible that some investors took a second look at the Fed’s recent choices and decided that QE3 is still a possibility.
In the crude oil markets, it didn't seem to matter that the dollar was under pressure on Friday, even though this would usually support the price of black gold.
Instead, weak US economic fundamentals continued to dominate the energy sector, which was already spooked by fears over reduced European oil demand.
In the end, WTI crude prices fell by $1.38 to $91.48, but not before touching $90.93, the lowest point since 3 November last year.
Spread Betting on Commodities - 18 May 2012
Gold's safe haven status was clear in yesterday's commodities trading, with the precious metal posting one of its highest gains for the year.
The boost came from the extremely poor Philadelphia Fed manufacturing figures, which struck a chord as the market was not expecting a weak reading.
The $35 gain to $1,573.0 followed on from heavy selling earlier in the week as gold was weighed down by a rallying US dollar. Currently the precious metal is trading at $1,574.
The price of crude oil continued its decline yesterday by moving in the opposite direction to gold after the weak US manufacturing figures.
As the fundamental picture begins to suggest that there could be a harsh contraction in economic activity, the bears seem happy with the adage 'Sell in May and go away'. Currently, Brent crude oil futures are trading at $106.76.
Spread Betting on Commodities - 17 May 2012
In commodities trading, yesterday gold hit new lows for the year at $1,527 an ounce before staging a modest comeback to close at $1,540.
The precious metal initially saw downside pressure as Greek turmoil kept safe heaven flows going into the US dollar. However, the FOMC minutes hinted that, given the state of the global economy, the Fed was becoming more open to another round of easing. This sent the dollar down and gold up.
The price of crude oil continued its downward trajectory yesterday. Traders factored in further supply increases and diminished global demand.
US crude oil also fell as inventories increased by 2.1 million barrels against an expected increase of 1.4 million barrels.
Spread Betting on Commodities - 16 May 2012
Gold continued to fall as traders dumped risky assets and piled into the safety of the US dollar. The gold spread betting market traded as low as $1,541 an ounce.
With little technical support seen until $1,531, and no turn around in Greece on the horizon, the downward trend looks set to stay firmly in place.
Dollar strength and increased supply data from the API kept the downward pressure on crude oil prices. The June contract is now firmly below the $93 level.
Data from the American Petroleum Institute showed that supplies have surged and traders are now re-pricing expectations for today's EIA supply data.
Spread Betting on Commodities - 15 May 2012
Gold prices suffered yesterday, falling $21.84 to trade at $1,557 an ounce, as risk aversion sent traders piling into the dollar.
Gold had previously been the asset which traders jumped into during moments of uncertainty. However, it has recently caught some traders off guard by recoupling with other commodities and returning to its inverse relationship with the dollar.
Crude oil made fresh lows for the year yesterday, shedding $1.41 to close at $94.20. Sentiment remains sharply negative and it doesn’t look like this will be changing any time soon.
With turmoil in Europe and slowing Chinese growth, demand for the black gold is set to remain weak.
In addition, mounting supplies from OPEC and expectations of another increase in US stockpiles, are keeping crude oil futures on a downward trajectory.
Spread Betting on Commodities - 14 May 2012
Gold futures continued to slide on Friday as risk aversion sent more traders fleeing into the safety of the US dollar.
The recent rush into dollars has seen the gold market reach new lows for the year.
Spot gold also fell 0.8% to $1,580.25 an ounce, shedding 3.7% on the week. This morning that weakness is continuing, with the precious metal at $1,570.
US crude oil futures continue to hold below the $96 level. Prices are being pressured by the slow down in China, turmoil surrounding Greece and the news from OPEC that supplies are 8% higher than consumer demand.
With more than ample supplies and negative cues in the global economy sapping demand, the price of crude looks set to remain under pressure for some time.
Spread Betting on Commodities - 11 May 2012
Buyers returned into the gold market yesterday, albeit at a cautious pace. They pushed the price of the precious metal higher and interrupted a streak of three consecutive declines.
However, the gain of $2.42 to $1,592.42 hardly changed anything in the overall downside trend, despite some better news coming out of Greece.
Investors could now be trying to assess how long it will take for gold to be back in favour.
The price of US crude oil futures saw a timid rebound of $0.63 to $97.08 yesterday. This was, by and large, driven by a rally in the global shares markets, coupled with a slightly weaker US dollar.
It might also be the case that, after the steep fall from a high of $106.43, the market could have been expected to take a breather.
Nevertheless, the short term trend remains firmly bearish, so yet another attempt to break convincingly below $96.00 could be on the cards.
Spread Betting on Commodities - 10 May 2012
Yesterday, spread trading investors discarded gold and looked for safety in the US dollar and Japanese yen.
It seems that the precious metal has lost some of its safe haven appeal lately, however it will be interesting to how it performs if Greece leaves the euro.
Could there be forced selling to cover margin calls elsewhere, or will there be a wave of buying as a hedge against market turmoil?
For now, gold has moved below $1,600.00, losing $16.33 to $1,588.86.
The price of US crude oil fell in early trading on fears of an escalation in Greece's debt troubles. However, a mixed bag from the Energy Information Administration's weekly inventories report somehow offered a late recovery.
From a technical analysis point of view, we did have another test of the support just below $95.50. Although a recent low was posted at $95.17, the market saw bargain hunters pushing the price back up. Overall, the US crude oil market lost $0.57 to $96.81.
Spread Betting on Commodities - 09 May 2012
Mirroring the sell off in equities and the euro, gold also posted a steep decline as the developments in the Greek political arena threaten to reignite the European debt crisis.
Sentiment is becoming more and more pessimistic. Even gold’s safe-haven status isn’t enough to attract spread betting investors, they are heading for the US dollar instead.
The drop of $33.57 to $1,604.39 took the daily gold market through support at $1,612. At the time of writing, the metal is below the psychologically important $1,600 level at $1,591.
Besides the political turmoil in Greece, on Tuesday, we also had the Saudi Oil Minister Ali Naimi saying that oil prices were too high.
That added downward pressure to the US crude oil price which continued its plunge to $97.01, 95¢ lower for the session.
From a technical point of view though, it was the second time US crude oil prices found good support around the $95.50 level and rebounded. Although another test looks underway, watch out for repeated failures to break the support.
Spread Betting on Commodities - 08 May 2012
Gold also remains in recent trading ranges, albeit near the bottom. For those of you who love long-term momentum, the last two big rallies failed to make new highs. This has not happened for some time.
It seems as though previous peaks are getting harder and harder to overcome. That said, there also seems to be virtually no appetite for selling below the $1600 level.
With the price at $1626, we can anticipate buyers coming in very soon. It will be interesting to see whether they can achieve the same results as in previous attempts.
Spread Betting on Commodities - 04 May 2012
Gold extended its losses for a third day in a row, ending $17.54 down at $1,635.98.
This came as the ECB President denied talks of a cut in interest rates. It sounded like the ECB are sticking to their mandate of caring less about growth and more about inflation.
Gold spread betting investors took notice of Draghi's comments and moved away from the precious metal, even though today's US employment data might see them move back. At the time of writing the precious metal is just softer at $1,632.
The price of Nymex crude oil posted a steep fall of $2.68 yesterday, crossing below the short term moving averages and settling at $102.54, a level not seen since 23 April.
Discouraged by the seemingly anaemic US recovery, buyers did not want to take on the extra risk of a potentially bad number in the Non Farm Payrolls report.
Instead they closed their long positions, deciding to wait for further confirmations of growth. This morning Nymex is looking a little pressured, down $0.50 at $102.00.
Spread Betting on Commodities - 03 May 2012
Bad news for the US employment sector spurred demand for the dollar, which in turn put downward pressure on the gold market.
As a result, gold prices took a hit yesterday, losing $9.2 to $1,653.60. The precious metal is still feeling the effects this morning by trading lower at $1,646.
The US Department of Energy released its weekly oil inventories report yesterday, showing a rise of 2.8 million barrels in crude stocks. This was more than analysts' earlier estimates for an increase of 2.3 million barrels.
Perhaps more importantly, the overall level of crude inventories has reached the highest mark since September 1990. This hurt the price of US crude oil by $0.76, falling to a close of $105.22.
In contrast, gasoline stocks fell by 2 million barrels, versus expectations of a drop of 0.9 million barrels, which may have limited the slump in oil prices.
Spread Betting on Commodities - 02 May 2012
Gold finished slightly lower yesterday, losing $1.65 to close at $1,662.80. This largely came on the back of the positive US manufacturing data, which sent investors back into risky assets.
Doubts that the Fed will employ another round of quantitative easing have also reduced demand for gold as a hedge against weaker US monetary policy.
Considering the bigger picture, the $1,620 - $1,680 range established last month is still in place. At the time of writing the precious metal is at $1,651.
The economic recovery in the US has continued to remain fairly resilient, as indicated by yesterday's positive manufacturing data, despite speculation of slowing activity.
Crude oil spread betting investors were quick to react, pushing US crude above the $106.00 resistance level and scoring a $1.27 gain for the day, closing at $106.16.
The upcoming reversal of the Seaway pipeline may have also played a supporting role as it could clear the glut in the US crude oil market. This morning US crude is just a little softer at $105.75.
Spread Betting on Commodities - 01 May 2012
The commodities markets saw a sharp sell off in gold yesterday which left everyone wondering about a so-called 'fat finger error'.
It was serious enough that trading was halted to allow 'the market to recalibrate', according to a CME spokesperson.
For the rest of the day, gold fought its way back up and closed $1.45 higher at $1,663.88.
Growing worries regarding the European economic outlook, as Spain slipped back into recession, weighed on US crude oil prices in yesterday's morning session.
Although the US economic figures also painted a negative picture, a late rebound in the stock market helped the energy sector regain some composure.
In the end, the price of US crude oil closed only marginally down, falling $0.06 to $104.87.
Spread Betting on Commodities - 30 April 2012
Following the weaker than expected US growth figures, many commodities investors took the view that the Fed will increase its current monetary easing program.
As a result, the gold market continued its rally with the precious metal ultimately gaining $4.9 for the day, rising to $1,662.3.
The price of WTI crude oil was on the back foot on Friday after the US economy showed weaker than expected growth.
However, the usual suspects, a rebounding equity market and a weaker US dollar, reversed the daily trend and pushed crude prices into positive territory, up $0.83 to $104.93.
In addition, some energy investors may have chosen to close their short positions that were established in the morning, unwilling to stay exposed over the weekend.
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 |
| | |
| 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 |
| | |
| 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?
|
| 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 |
| | |
| 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
- Gold is traditionally priced in dollars per troy oz
- 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 |
| | |
| 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?
|
| 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
- Crude Oil is traditionally priced in dollars per barrel
- 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:
Commodities Spread Betting Guides
Individual commodities spread betting guides with worked trading examples for each market:
- Energies spread betting guides:
- Metals spread betting guides:
- Softs spread betting guides:
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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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, 21 May 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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