Spread Betting Provides Opportunities in the Commodities Markets

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City Index

07 Mar, 2012, 08:30 GMT

LONDON, March 7, 2012 /PRNewswire/ --

Spread betting allows traders to gain exposure to a range of commodities markets including both US and UK crude oil, with a spread from just 6 points.

One of many key benefits to spread betting is that traders can access thousands of markets including commodities, of which they may not have had exposure to before.

Spread Betting

Another key benefit for traders choosing spread betting is that currently in the UK, all gains are free from Capital Gains Tax (CGT). However, UK tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

Spread betting offers an easy entry level into the financial markets due to its low margin feature and high leverage.

Allowing traders to go both long and short - spread bettors can profit from a market which falls as well as rises.

The aforementioned high leverage allows traders to deposit just a small percentage of the total value that they wish to trade; increasing exposure which could potentially magnify profits.

However, should the market move against their position, a leveraged product such as spread betting can also result in losses greater than the initial deposit, making risk management imperative to a trading strategy.

Commodities: US Crude Oil

On March 6th 2012, the price of crude oil fell on the New York Mercantile Exchange (NYMEX) following concerns over a reduction in global demand.

Even though at 11:00 GMT, light sweet crude oil for April delivery fell $0.60 to $106.12 a barrel on the NYMEX, earlier trading had seen oil prices rise to $107.34 a barrel in the commodities market.

With this in mind, any market that frequently rises and falls could result in potential profits for traders who choose to spread bet by going long (buying) and short (selling) on their trades.

Going Short: US Crude Oil

Here we provide an example of spread betting with City Index and going short (selling) on the US Crude Oil Daily Future Spread.

Let's say that on the morning of March 6th 2012, the US Crude Oil Daily Future spread price is trading at 10516/10522 and having utilised your preferred form of analysis and online trading tools, you believe the market will soon fall, and decide to sell £5 per point at 10516 (your sell price).

In order to open the position you need to put down a margin of 160 x stake, which is (160 x £5 per point) = £800.

Later on in the day, your predictions prove correct when it is announced that there are concerns over a reduction in global demand for US Crude Oil, causing the price of oil to fall.

When it reaches 10497, you decide to cash in your profits.

The US Crude Oil Daily Future Spread is now trading at 10490/10497, therefore you buy back £5 per point at 10497.

As a result, you sold at 10516 and bought back at 10497, representing a 19-point movement in your favour, which at your stake size of £5 per point, you net a tax-free* profit of £95 (10516-10497 x £5).

However, had you been wrong and the US Crude Oil Daily Future spread price rallied to 10535, you would have net a £95 loss (10535 - 10516 x £5).

*Spread betting is exempt from both UK stamp duty and UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances.

Summary

Spread betting exposes traders to a wide range of markets, such as commodities, that they would otherwise not have exposure to through traditional trading as well as the ability to profit from a market that both rises and falls.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand our range of services. The result is our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for details.