Commodities Spread Trading
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Where Can I Open a Commodities Spread Trading Account?
There are many spreads firms which offer a wide range international markets including commodities like gold, crude oil and coffee, but also stock markets, forex and equities.
Some firms, such as FinancialSpreads.com, offer account holders the usual benefits of spread trading including two-way trading and tax free* trading with zero commissions. They also let you trade a good number of commodities futures markets 24 hours a day, 5 days a week. For more details see 24 hour spread trading.
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| Gold Daily - Spread Size |
4 |
5 |
4 |
4 |
5 |
4 |
5 |
4 |
| Gold Daily - Min Stake |
£1 |
£1 |
£1 |
£0.1 |
£1 |
£1 |
£1 |
£1 |
| Gold Future - Spread Size |
6 |
6 |
6 |
6 |
7 |
6 |
13 |
6 |
| Gold Future - Min Stake |
£1 |
£1 |
£1 |
£0.1 |
£1 |
£1 |
£1 |
£1 |
| Brent Crude Daily - Spread Size |
5† |
5 |
5† |
4 |
5† |
5† |
5 |
5† |
| Brent Crude Daily - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| Brent Crude Future - Spread Size |
5 |
6 |
5 |
6 |
5 |
5 |
5 |
5 |
| Brent Crude Future - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| US Crude Oil Daily - Spread Size |
5† |
5 |
5† |
4 |
5† |
5† |
6 |
5† |
| US Crude Oil Daily - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
| US Crude Oil Future - Spread Size |
5 |
6 |
5 |
6 |
5 |
5 |
6 |
5 |
| US Crude Oil Future - Min Stake |
£1 |
£1 |
£1 |
£0.5 |
£1 |
£1 |
£1 |
£1 |
Comparison Notes
Advantages of Commodities Spread Trading
Commodities spread trading has a number of important advantages over some of the more traditional investment options:
- Spread trading is tax free*. With commodities spread trading you are not actually taking possession of any assets, you are simply speculating on the future price of a commodity. As a result, you don’t pay income tax, capital gains tax or stamp duty.
- Unlike traditional methods of trading commodities, spread trading offers you a simple way of speculating on markets to go down as well as up. If you think the price of crude oil will go up, you can take a position on that. Likewise, if you think that the gold market will fall you can also take a position on that.
- Most spread trading companies, like the ones listed on this page, do not charge broker’s fees or commissions on your trades. Naturally this can help to keep your trading costs down.
- Financial spread trading offers investors a huge range of international markets. You can take positions on gold, UK crude oil, US crude oil, wheat etc but from the same account you can normally take positions on:
- Indices eg the FTSE 100, Dow and DAX 30
- Stocks eg UK, US, German and French shares
- Forex eg dollar/yen, euro/dollar, sterling/dollar
- Government Bonds
- Interest Rates
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Financial Spreads
"With FinancialSpreads.com you get all the normal
advantages of Spread Trading plus commission free trading on 2,000+ markets, 24 hour trading and..." read
Financial Spreads review.
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Gold Spread Trading Example
Looking at the InterTrader site, they are currently pricing the Gold Rolling Daily market at $1,403.9 - $1,404.3. Therefore, you could speculate on the price of gold to:
- Move above $1,404.3, or
- Move below $1,403.9
With gold spread trading you trade in £x per $0.1. Therefore, if you decide to have a stake of £4 per $0.1 and gold moves $0.5 then that would change your profit/loss by £20. £4 per $0.1 x $0.5 = £20.
Commodities Rolling Daily Markets
Note that this is a 'Rolling Daily Market' and therefore there is no set settlement date so if your trade is still open at the end of the trading day, it will just roll over into the next trading session. If you let your trade roll over and are spread trading on the market to:
- Go up - then you would normally pay a small financing fee, or
- Go down - then a small payment is usually credited to your account
For details see rolling daily spread trading.
Gold Rolling Daily Example
If we think about the spread of $1,403.9 - $1,404.3 and make the assumptions that:
- You have analysed the gold market, and
- You think that gold will move higher than $1,404.3
Then you might buy at $1,404.3 for a stake of, let’s say, £2 per $0.1.
With such a trade you make a profit of £2 for every $0.1 that gold pushes above $1,404.3. Of course, it also means that you will lose £2 for every $0.1 that gold drops below $1,404.3.
Put another way, if you buy a spread trade then your profit/loss is calculated by taking the difference between the closing price of the market and the price you bought the spread at. You then multiply that price difference by your stake.
As a result, if after a few trading sessions the commodity rose then you might consider closing your position to secure your profit. If the market rose and the spread moved to $1,410.6 - $1,411.0. You would settle your position by selling at $1,410.6. As a result, with the same £2 stake this trade would make you a profit of:
Profit / loss = (Settlement Level - Opening Level) x stake
Profit / loss = ($1,410.6 - $1,404.3) x £2 per $0.1 stake
Profit / loss = $6.3 x £2 per $0.1 stake
Profit / loss = £126 profit
Trading commodities spreads is not straightforward. With this example, you had speculated that gold would go up. Naturally, it could decrease. If gold had started to fall then you might choose to close your position in order to limit your losses.
So if the market dropped to $1,398.7 - $1,399.1 then you would sell back your position at $1,398.7. This would result in a loss of:
Profit / loss = (Settlement Level - Opening Level) x stake
Profit / loss = ($1,398.7 - $1,404.3) x £2 per $0.1 stake
Profit / loss = -$5.6 x £2 per $0.1 stake
Profit / loss = -£112.00 loss
Note: Gold rolling daily market taken as of 21-Feb-11.
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Financial Spreads
"With FinancialSpreads.com you get all the normal
advantages of Spread Trading plus commission free trading on 2,000+ markets, 24 hour trading and..." read
Financial Spreads review.
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Crude Oil Spread Trading Example
Looking at Tradefair, they are currently pricing the Brent crude oil ‘April’ futures market at $105.08 - $105.13. This means you could speculate on the price of a barrel of Brent crude oil:
- Moving higher than $105.13, or
- Moving lower than $105.08
On the settlement date for this 'April' futures market, 11-Mar-11.
With crude oil spread trading, you trade in £x per $0.01. So, if you decided to risk £2 per $0.01 and Brent crude moves $0.05 then that would change your P&L by £10 given that £2 per $0.01 x $0.05 = £10.
Crude Oil Futures Example
So, if we think about the spread of $105.08 - $105.13 and assume:
- You have analysed the oil markets, and
- Your analysis leads you to think that Brent crude will finish higher than $105.13 by 11-Mar-11
Then you might decide to go long of crude at $105.13 for a stake of £1 per $0.01.
Therefore, you win £1 for every $0.01 that the price of a barrel of Brent crude oil moves above $105.13. Conversely, however, you will lose £1 for every $0.01 that the Brent crude market sinks below $105.13.
Looking at this from another angle, should you ‘Buy’ a trade then your P&L is found by taking the difference between the final price of the market and the price you bought the spread at. You then multiply that difference in price by your stake.
As a result, if, on the expiry date, the Brent crude oil market closed higher at $106.42, then:
Profit / loss = (Closing Price - Opening Price) x stake
Profit / loss = ($106.42 - $105.13) x £1 per $0.01 stake
Profit / loss = $1.29 x £1 per $0.01 stake
Profit / loss = £129 profit
Trading commodities doesn't always work out as you would have liked. In this example, you wanted the commodity to increase. Naturally the price of oil could also have fallen.
If Brent crude oil had fallen and settled at $103.76, you would end up making a loss.
Profit / loss = (Closing Price - Opening Price) x stake
Profit / loss = ($103.76 - $105.13) x £1 per $0.01 stake
Profit / loss = -$1.37 x £1 per $0.01 stake
Profit / loss = -£137 loss
Note - Brent crude oil ‘April’ futures spread quoted as of 21-Feb-11.
Where Can I Find Commodities Spread Trading Charts?
Most spread trading companies offer candlestick charts in addition to a wide range of historical data and analysis. For example, the commodities spreads charts offered by most of the firms listed on CleanFinancial.com let you add a range of automated settings such as Moving Averages and Bollinger Bands.
So depending upon how you want to trade the markets, you can quickly change the charts to show the data across a variety of different time scales from minute-by-minute to hour-by-hour to week-by-week.
Commodities Spread Trading Companies – Account Services Comparison
The companies detailed below all offer account holders a range of commodities markets as well as all the normal spread trading benefits mentioned above, ie commission free, tax free* trading, two-way trading and a wide variety of markets.
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| Online Application |
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| Credit Account |
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| Deposit Account |
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| Stop Loss Available |
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| Automatic Stop Loss |
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| 24 Hour Trading |
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| FSA Authorised and Regulated |
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| Candlestick Charts |
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Comparison Notes
Commodities Spread Trading and Risk Management
All investments come with some element of risk and with spread trading you can lose more than your original stake or investment.
Before you trade, note that spread trades carry a high level of risk so ensure that spread trading matches your investment objectives. Familiarise yourself with the risks that are involved. Seek independent advice where necessary.
At the same time though, you can employ fairly simple risk management techniques to reduce your downside such as:
- Putting limits on your trade in order to limit your losses without impacting your upside, for more details see Guaranteed Stop Losses
- Trading with small stakes, eg you can trade with smaller stakes such as £1 per point or $1 per point. You won’t win as much as if you trade with larger stakes, but any losses will also be smaller.
It’s always surprising how many investors get greedy and ignore these techniques.
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Financial Spreads
"With FinancialSpreads.com you get all the normal
advantages of Spread Trading plus commission free trading on 2,000+ markets, 24 hour trading and..." read
Financial Spreads review.
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Risk Warning: Spread trading carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Commodities Spread Trading' by DB, updated 22-Feb-12
For related pages also see:
Index Spread Trading, updated 22-Feb-12
Index Spread Trading - Where to open an Indices Spread Trading account, where to find Index spread trading charts, Indices risk management tips, stock market index spread trading examples and...read article: Index Spread Trading.
Commodities Spread Trading, updated 22-Feb-12
Commodities Spread Trading - Where to open a Commodities Spread Trading account, where to find Commodity spread trading charts, Commodities risk management tips, Commodities examples and...read article: Commodities Spread Trading.
Financial Spread Trading, updated 22-Feb-12
Financial Spread Trading - A look at where you can open a financial spread trading account, where to get live financial spread trading charts, risk management tips, spread trading examples and...read article: Financial Spread Trading.
Forex Spread Trading, updated 22-Feb-12
Forex Spread Trading - A look at where you can open a forex spread trading account, where to get live forex charts, forex risk management tips, trading examples and...read article: Forex Spread Trading.
FTSE Futures, updated 30-Jan-12
FTSE futures. Where to find FTSE real-time prices and charts, how to trade the FTSE index and the most popular stock market futures questions on FTSE plus...read article: FTSE Futures.
Dow Futures, updated 30-Jan-12
Dow futures. Where to find Dow real-time prices and charts, how to trade the Dow index and the most popular stock market futures questions on Dow plus...read article: Dow Futures.
S&P 500 Futures, updated 30-Jan-12
S&P 500 futures. Where to find S&P 500 real-time prices and charts, how to trade the S&P 500 index and the most popular stock market futures questions on S&P 500 plus...read article: S&P 500 Futures.
DAX Futures, updated 30-Jan-12
DAX futures. Where to find DAX real-time prices and charts, how to trade the DAX index and the most popular stock market futures questions on DAX plus...read article: DAX Futures.
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