Commodities: How To Spread Bet When Markets Go Down
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An advantage of spread betting is one profits in a declining market. This means investors make money on commodities when prices decrease.
This is different from traditional investing on the stock exchange. A bettor does not own a commodity and will not sell it for a profit. This is how traditional investing works in regards to making profits.
In spread betting, bettors are simply making a wager on a market. They are wagering on what the price of the commodity will do. Traders predicted it to go up or down on the stock exchange.
A trader betting the markets down is thinking prices will decrease. A trader places a sell bet, called going short, on the bid price. The spread is a range of two numbers and the bid is the lowest number.
As long as the market falls below the bid, a sell bet is profitable. The more a market falls past the sell price, the greater the profits.
A trader places a sell bet on Gold with a spread of 1219.1 - 1219.5. The bettor’s wager is a stake size of £4 for every point movement. After two weeks, Gold falls to 1209.1 and profits are now £40.
The profits are figured by taking the current value and sell price. The current market value is subtracted from the sell price placed. This result is then multiplied by the wager and this is the profit.
In this bet, the spread bettor decides to keep the bet open. The reason is one believes the price of Gold will fall even farther. The price of Gold decreases to 1193.1, a point difference of 26.
The total profits now are £104 which is greater than before. The trader bets the market to go down so the trader continues to win. One continues to win as long as the price continues to decrease.
Traders need to remember commodities trade in different points. Gold and coffee trade in 0.1 per point and soybeans is 0.25 per point. Traders need to know the different price per point movements.
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