Commodities: How To Spread Bet When Markets Go Up
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Spread betting is a favourite type of investment for UK residents. There are many different financial instruments to trade or bet. These include the commodities markets like corn, oil, and cattle.
Betting commodities markets to go up means prices will rise. Therefore, a trader places a buy bet on any type of commodity. Buy bets signify the trader predicts the market prices will rise.
Another term for placing a buy bet is going long or go long. These two terms are used interchangeably when spread betting. A spread bet is not the purchase of a commodity only a wager.
A trader analyses the commodity using a chart to make a prediction. A price chart is a graph which plots prices based on time intervals. The data is connected by a line and opening and closings are noted.
Traders use this chart frequently in spread betting commodities. It is also used to predict the future direction of the commodity. A lot of useful information for traders is generated from charts.
A trader looks for a competitive spread on that particular commodity. For example, a spread for US Light Crude is quoted at 7898-7902. The trader buys the commodity at the 7902 price for a stake of £2.
This commodity has an expiration of one month from the current date. The price of US Light Crude fluctuates over the market buy price. However, the price moves and tends to fall back within the spread.
A week prior to the expiration date the market price is at 7910. The trader decides to sell the commodity bet back or close the bet. Therefore, the bet closes at 7910, the current market price.
The trader's profits on this bet are figured by taking two levels. The difference of the opening and closing level are subtracted. This difference is 8 so the market movement was a total of 8 points.
The stake of £2 is multiplied by the 8 point movement in the market. The trader wins this commodity bet and the total profit is £16. Profits are immediately deposited into a trader’s betting account.
The trader betting the commodity market to go up was successful. However, not all buy bets on commodities will be winning trades. This could have fallen below the buy and would have been a loss.
The loss for a commodity bet is calculated the same way as profits. If the market had closed at 7891 the total loss would have been £22.
Spread betting the commodity market to go up means higher prices. At least this is the trader’s prediction that prices will increase. A trader must understand the commodity to predict correctly.
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