How to Bet on Commodities | Commodities Betting
Why Spread Bet on Commodities?
Investors across the world today have a much wider range of options when it comes to betting on commodities, thanks to a growing menu of mutual funds and exchange traded funds. You can bet on commodity-related stocks which have been around for decades as well as bet on ETFs that invest in physical metals and commodity futures. Commodity prices can be volatile, but if you do some research, familiar yourself with the current trends and previous history, you will be able to know which way prices are heading in the near term. Investors may have a big pay off if they invest in commodities, rather than stocks. Commodities are great to trade on even for the new traders. These markets often have very tight spreads. There is a wide range of products when it comes to betting on commodities.
Range of Commodity Markets
Metals: Gold, Silver, Palladium and Platinum
Energy: Crude Oil (NY), Crude (London), Gasoline, Natural Gas
Agricultural: Soybeans, Soybean Oil, Soybean Meal, Corn, Wheat, Oats
Meats: Pork Bellies, Lean Hogs, Live Cattle, Feeder Cattle
Softs: Cocoa (NY), Coffee (NY), Sugar
Miscellaneous: Cotton, Lumber, Frozen OJ
Shares of commodities can sometimes rise over time even if the material(s) you have bet on is getting cheaper of prices are stagnating because companies can add value and cut costs. Betting on commodities is relatively much safer because they are less likely to rise or fall sharply with the stock market.
An Example of Betting on Commodities
Betting on commodities is simple. If you believe that the gold price is going to rise due to recent negative news about the Euro zone you can bet on gold, for example. The current spread for gold is 1640.2/1640.6 and you decide to buy for 1660.8 at $5 per point. As you anticipated, the Euro zone crisis worsens and investors turn to gold to secure their portfolios or investment. The gold price goes up as demand increases. You decide to close the trade as the gold price has stood at 1690.4/1690.8. Difference between your opened and closed positions = 50.4. Your profit = 50.4 * $5 = $252
Betting on Commodities Risks
Commodities can get extremely volatile for many reasons such as adverse weather, threat to supplies because of political unrest in commodity producing countries, storage problems and disease. Start with small positions if you are a new trader till you get a better idea of the market’s character and how it can move over time. Also, take into consideration the quiet and busy seasons of many commodities when betting on those commodities.
Today, spread betting on commodities is very popular among traders across the world. Trading commodities is very straightforward and does not differ from traditional spread betting or trading. If you take precautions before betting on commodities, it is possible to gain significant profits by betting on commodities. Usually, most commodities tend to stay stable for long durations, providing there is no high volatility in the market. Soft commodities, however, may move up hugely, up to 50%, over a short period of time. It is very important that you take calculated risk when betting on commodities to cut your losses and maximize your profits.
The Bottom Line
Commodities are often a favourite arena to trade for many spread betting clients as they can be volatile. If traders study the market well there are good profits on offer. It is very important to choose a professional and reliable broker that can provide helpful guides and tutorials about spread betting on commodities.
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