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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 - 17 May 2013
In commodities spread betting, crude oil bucked the recent trend by spending a day in the black.
It was a volatile session during which the market spent early trading at a loss before finishing strongly and closing at $95.13.
News that billionaire George Soros had reduced his gold holdings in exchange-traded products piled on the misery for gold investors yesterday.
The precious metal will not have been helped by the strengthening dollar and we are currently trading at the $1,380 level for the June futures contract.
Spread Betting on Commodities - 16 May 2013
Crude oil slipped further during yesterday's early trading but managed to claw back losses following an unexpected drop in US stockpiles; 600,000 barrels were wiped off the inventory list.
As a result, the market closed relatively unchanged at $94.30.
Gold investors seem to keep taking a battering, with yesterday providing the latest punch.
Gold futures for June delivery ended 2% lower at $1,396, the lowest level for almost a month.
Low inflation numbers from the US and the continuing strength in the dollar provided the main stimulus for the move.
Spread Betting on Commodities - 15 May 2013
US crude closed $0.96 lower at $94.21 yesterday, as the strengthening dollar made the market more expensive for foreign investors.
Increasingly high inventory levels and sluggish demand was also to blame for the declines.
Gold inevitably suffered on what was a 'risk-on' day for spread betting markets. The precious metal fell for its fourth consecutive session on Tuesday, settling at $1,424.
The gold-buying season in India is likely to provide some near-term support in what otherwise looks to be a fairly bleak outlook.
Spread Betting on Commodities - 14 May 2013
The ever increasing supply in an environment that is not raising demand is hampering US crude prices at the moment.
This week may show US stockpiles at their highest levels since the 1930's, whilst growth in the world's most consuming economies, the US and China, still remains sluggish.
Accordingly, the US crude oil futures contract for June delivery closed 0.7% lower at $95.38.
Gold continues to struggle and the start of this week saw another move to the downside.
As risk-averse investors, who had previously turned to gold as a safe haven and inflationary hedge, continue to seek riskier assets, the price of gold will continue to fall.
Despite this, the precious metal is seeing some temporary respite this morning against the weaker dollar.
Spread Betting on Commodities - 13 May 2013
Gold had a tough time on Friday, falling by around $35 at one point before rebounding somewhat to close at $1,442.
The strength of the dollar is partly responsible for the declines as it makes the commodity more expensive for foreign investors.
The strengthening dollar also hurt the price of US crude, with extra downside pressure being added by rising inventory numbers and increased production.
The June futures contract may have closed at $95.88 on Friday but it is considerably lower this morning.
Spread Betting on Commodities - 10 May 2013
Improving economic data raised concerns about the potential for more restrictive US monetary policy and had a negative impact on West Texas Intermediate on Thursday.
The June delivery futures contract went as low as $95.35 only to recover later on and close just $0.22 down at $96.39 per barrel.
In commodities trading, the relatively large appreciation in the dollar was the main driver for the gold price.
This, combined with the positive US employment data, resulted in a 1% fall for the precious metal.
Spread Betting on Commodities - 09 May 2013
A fall in oil inventories at Cushing, one of the largest storage hubs in the US, sparked a continued rally in the price of US crude oil on Wednesday.
In addition, some improved growth numbers out of China will have also fuelled the rise.
The US crude market was even able to close the gap on Brent crude to less than $8 as it closed at $96.50, up 1%.
Gold futures had a good day on Wednesday as the contract for June delivery closed $25 higher at $1,475, its highest level for almost a month.
The sharp fall of the dollar supported the rise as well as hopes of surging demand from China in the coming months.
Spread Betting on Commodities - 08 May 2013
US crude saw its first drop in four days yesterday, falling by around $0.30 as the expected news of increasing US stockpiles was confirmed.
Having said that, oil prices did draw some support from the growing tensions between Israel and Syria.
Gold continued to fall on Tuesday as investors turned their attention and resources to equities in search of better returns.
Ultimately, the precious metal closed $20 lower at $1,450.
Spread Betting on Commodities - 03 May 2013
In commodities trading, the energy sector was undoubtedly revived by signs that US employment may be on the mend and that the downside risk of Europe's recession is being addressed.
As such, WTI crude prices reversed course and headed higher, managing to gain $3.07 to $94.00.
However, job creation remains the Achilles heel in the current environment and many will be hoping that today's US unemployment report doesn't disappoint.
Gold prices gained $9.9 to $1,467 yesterday, boosted by signs that global monetary policy could get even looser.
This came despite a stronger US currency, which could indicate demand for asset preservation when fiat currencies disappoint market participants.
Spread Betting on Commodities - 02 May 2013
The US Department of Energy released its weekly stockpiles report which showed a much larger-than-expected rise in crude inventories.
The figure of 6.7 million barrels was significantly higher than the consensus estimate of 1.2 million, with overall oil supplies also skyrocketing to an incredible 82 year high.
As a result, it came as no surprise to see the price of US crude oil plunging $2.12 to $90.92, with extra downside pressure coming from the weak economic data in the US.
Gold investors seemingly focused less on the Fed reiterating its current stance and more on the promises of a reduction in monetary policy should the inflation outlook change.
This caused the precious metal to resume its slump, with the market losing $18.1 to $1,457.9, after recouping more than half of the now famous two day record nosedive.
Spread Betting on Commodities - 01 May 2013
With US crude oil supplies at record highs, it is little surprise that a triple digit price tag remains elusive, despite ongoing news that the American economy is slowly recovering.
As such, expectations that the US Department of Energy will show inventories rising by 1.2 million barrels to another 22 year high pushed the price of WTI crude $1.30 lower to $93.06.
Despite anticipation of further monetary easing on both sides of the Atlantic, gold prices ended rather flat yesterday, trading in a tight daily range around the $1,476.5 level.
This may imply that the dovish news is already priced in, with investors on standby for more developments before committing further capital.
Spread Betting on Commodities - 30 April 2013
Growth seems to be the name of the game in the eyes of officials on both sides of the Atlantic.
Whilst the ECB is predicted to cut rates, the Fed is seen reiterating its current easing stance.
The result was heightened optimism in the energy sector and a weakening US dollar, with investors pushing US crude oil prices $1.69 higher to $94.38.
With fear of inflation nowhere in sight, it was left to expectations of further monetary stimulus to reignite demand for gold as an alternative asset.
As a result, the precious metal managed to climb $10.2 to $1,476.4, with additional support being provided by ongoing news of a pickup in Asian demand for jewellery.
Spread Betting on Commodities - 29 April 2013
The ongoing, and mostly positive, US corporate earnings news did not translate into similarly pleasant reading for GDP growth.
As always, the energy sector remained highly sensitive to the overall economy and WTI crude prices retraced $0.30 to $92.90. It’s possible that this week’s FOMC meeting and the non-farm payrolls figures could rebuild the slightly shaken confidence.
Bad news on the economic front put downside pressure on the whole commodities spectrum on Friday, it also pushed inflation fears a little further away.
That sent gold $10.1 down to $1456.9 after the metal failed to make a determined attempt to cross above the $1500.00 mark.
Spread Betting on Commodities - 26 April 2013
The WTI crude oil market extended its recent gains for the fourth consecutive session yesterday, adding $1.70 to $93.22 after reports of fewer unemployment claims in the US.
Considering the gloomy outlook for the global economy, including renewed questions of whether China is in for a hard landing, energy investors must have welcomed the chance to see crude prices rally.
During an eight day struggle, gold has managed to recoup roughly half of mid-April's violent sell off.
Yesterday's $37.2 rally to $1,467.8, was the result of rising demand for the physical metal, including bars, coins and jewellery, coupled with ongoing bargain hunting.
However, it's probably too early to suggest that we are seeing a shift back to the times when gold was everyone's darling.
Spread Betting on Commodities - 25 April 2013
While the crude oil inventories for last week indicated a lower than projected build, it was actually the crude products which captured investors' attention.
In particular, gasoline stocks posted their steepest drop in a year and, given that the US driving season will start in a month, this understandably sparked a sharp rally in US crude prices, climbing $2.03 to $91.58 a barrel.
Resuming its upside trend, gold surged $18 to $1,431 yesterday after suffering from the worst sell off for three decades in just two days.
Along with heightened expectations that the ECB is considering another set of easing measures, there were also reports of rising physical demand from central banks in Russia and Kazakhstan.
Spread Betting on Commodities - 24 April 2013
Nymex crude oil futures managed to recover from an early slump, closing $0.27 into positive territory at $89.51.
Initially, the gloomy outlook on Europe's manufacturing spilled into the energy complex but the US new home sales data saved the day in the afternoon session.
Later today, the US Department of Energy is due to report its weekly crude inventories which are expected to show a rise of 1.8 million barrels.
We saw a $12.5 drop in gold yesterday to $1,413.1, snapping a five day rally on renewed confidence in the US economic recovery.
Meanwhile, the gold spread betting market is still feeling downside pressure from expectations of plunging demand for industrial metals after China reported a slowdown in its economic growth.
Spread Betting on Commodities - 23 April 2013
Commodities spread betting investors' overall optimism regarding the US economy trumped the slight disappointment in the US housing sector yesterday.
That spilled over into the energy complex and helped push WTI crude oil prices $1.18 up to $89.32.
However, the rally was fairly short lived as overnight figures showed Chinese manufacturing seeing a slowdown in growth, sending crude oil into the red.
Gold continued its rebound yesterday, with the market gaining $17.7 to $1,426.2, on reports of renewed demand for coins, bars and jewellery.
After suffering from such a violent decline, the largest in the last few decades, it was always likely that a few bargain hunters would be enticed back in.
This is especially true given that the Japanese have promised QE on a massive scale to get rid of their crippling deflation.
Spread Betting on Commodities - 22 April 2013
After an early rally, which briefly pushed US crude oil above the $89 mark, we saw a slip back into the red on rather quick profit taking.
The International Monetary Fund's downgrade of US economic growth expectations from 2% to 1.9% may have been behind the sell off, as well as China's estimated slowdown from 8.2% to 8%.
After last Monday's massive plunge, gold buyers made a cautious comeback for the rest of the week.
The precious metal managed to cross back above the $1,400 level on Friday and, encouragingly, it remained there posting a $6.2 gain for the day.
Nonetheless, it's too early to say whether a renewed slump is on the cards or whether the price is now attractive enough for longer-term investors.
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?
|
| 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
|
| When Betting on a Market to Go Down Your Profits/Losses = | (Opening Price - Closing Price) x stake per $0.1 |
| | |
| 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?
|
| 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
|
| 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, 17 May 2013.
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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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