ETX Capital can help you spread bet on commodities, whether you are learning the basics of financial trading or have a good grasp of markets and are simply looking for a new broker.
Our platform allows you to place daily and future spread trades on a range of commodities that are traded on global markets.
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What is commodities trading?
In trading terms, a commodity is defined as a good that is interchangeable with other produce of the same type. So, for instance, crude oil purchased in the UK will be identical to that bought in the US.
Commodities trading is therefore the way in which such goods are bought and sold around the world.
Many investors have turned to spread betting on commodities, as this allows them to profit from rising or falling prices.
As spread betting is a form of margin trading, a much smaller initial stake will be required than if you were to purchase the underlying commodity, but you are still exposed to the full movement.
All about commodities trading
The most popular commodities markets can be grouped into four broad categories - precious metals, agriculture, energy and softs.
The energy and metals markets are relatively self-explanatory, while agriculture covers crops like soybeans, corn, wheat and oats. Meanwhile, softs refers to goods such as coffee, sugar and cocoa.
Gold, silver and crude oil are among the most popular commodities for spread betting.
Numerous factors can have an impact on commodity prices, but one of the most influential is simple supply and demand dynamics.
Production is another thing that can drive prices up or down, while seasonal changes will have an effect on the value of crops.
Storage capacity, particularly for energy commodities, is a further element that can influence the prices at which such products are offered on the market.
When spread betting on commodities, trades are usually carried out as futures bets, although it is possible to hold daily positions too.
A commodities spread betting example
As with all spread betting, you can make a profit from rising or falling commodity prices, which is one of the reasons why this approach is becoming more popular with traders who want to take advantage of market volatility.
In this example, we will look at placing a spread bet on the future price of crude oil, with a December expiry.
You will be quoted two prices - the bid (the smaller of the two figures) and the offer. You would accept the offer price if you believe the value of oil will rise, or take the bid price if you think the cost of oil will fall.
The difference between these two figures is known as the spread. The smaller the gap, the less price movement you will require to make a profit or loss.
For instance, crude oil for December expiry is trading at 99.05 - 99.11 and you believe this will rise further over the coming weeks, so you accept the offer or the ask price of 99.11 and place a bet of £5 per tic that this moves.
The value of the commodity continues to increase and after three weeks of holding the position, you decide you would like to close the trade.
You are now quoted 100.65 - 100.71 for crude oil. You would therefore 'sell' at the bid price of 100.65.
This means the price has risen by 154 tics - and at £5 per tic, this means your profit is £770.
Of course, prices are just as liable to fall as they are to rise on commodity markets and had the value of crude oil dropped, you would have incurred a loss of £5 per tic.
Appendix
1. Trading hours
These are the usual hours of business but may vary where daylight saving applies or where there is a market holiday. All times are expressed as London time.
Unless stated trading hours are for Monday to Friday.
2. Overnight finance adjustments
If you hold a position overnight in a commodity rolling daily contract a finance adjustment is made to your account shortly after the official Pit closing time. For Gold an overnight charge is applied to positions held at 18:30 and for Silver it is 18:25.
Important note: This adjustment is applied to your account despite the fact that you may have closed your position after stock market close but before the end of ETX Capital out of hours trading for that day.
The adjustment is calculated as follows:
f = (s x p x ir) / d
where
f = daily financing adjustment
s = your stake
p = closing price of rolling market as determined by ETX Capital
ir = interest rate, including plus 2.5% for long positions and minus 2.5% for short positions.
d = number of days, i.e. 365 for UK and 360 for all others
Long (buy) rolling bet positions are debited a daily financing adjustment
Short (sell) rolling bet positions are credited a daily financing adjustment
The daily financing fee will be applied to your account each day that you hold an open position (including weekends and holidays).
There may be instances when a daily financing fee is charged to you on short positions, rather than paid to you. This may occur if LIBOR is at an exceptionally low rate.
3. Spread
Where reference to the market spread is used this is a combination of the underlying futures spread and the ETX Capital spread shown for each market.
4. Max stake size
Please note, ETX Capital may modify the maximum stake size available for a market in some circumstances, for example, during fast-moving or low liquidity markets.
5. Basis of settlement
Futures positions left to expiry will be closed basis the relevant ETX Capital bid or offer settlement price. For example, if you are long a futures contract then you will be closed using the ETX Capital settlement bid (sell) price.
6. ETX Capital pricing
The ETX Capital gold & silver rolling daily contracts are priced off the underlying futures front month contract with a ‘fair value’ adjustment, so any stops & orders will be filled on this basis.
Further information
Futures rollovers
Futures positions can be rolled over before the expiry of the contract.
ETX Capital will close the open position at the current bid/offer price for that contract and open the new position at the mid price of our current quote for the next contract month.
Daily futures markets cannot be rolled.