Commodities and Spread Betting

An Introduction to Spread Betting on Commodities

If you would like to start speculating on commodities, such as gold, oil, corn and coffee, etc. then you will find that one of the easiest ways to accomplish this objective is to do so by spread betting. This is because brokers offer spreads on a diverse range of commodities which will almost certainly satisfy your particular preferences.

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Many experts endorse this method of executing spread bets as they have already acquired significant streams of profits from trading commodities. You will discover that commodities are not difficult to spread bet but that you will need to attain a good appreciation about their individual trading profiles in order to ensure success. For instance, the performance of certain commodities is substantially influenced by the weather and seasons. You do not need to take these factors into consideration when trading stocks. Consequently, commodities can add variety to your portfolio which can be especially of importance when market trends are flat and uncertain.

Commodities were the first ever products to be traded on the Future exchange markets. Even during the early days, evidence was soon produced emphatically indicating that this activity was capable of generating substantial profits although it did harbor significant levels of risk. In addition, rewards could be gained from both declining and rising market conditions.

Experts now state that speculating on commodities using spread betting is a less risky affair than attempting to trade the futures market directly. One of the primary reasons for this feature is that the latter requires you to invest a substantial capital outlay in order to purchase a holding in the commodity of choice. As such, the amounts involved are normally outside the comfort zone of most individual investors.

In contrast, your spread betting broker will supply you with an impressive leverage facility after you have become a registered member, which can be as high as 100:1. You will be able to activate large positions by backing them with just minimum deposits. As such, your initial capital outlay will be significantly reduced along with your risk exposure. In addition, whereas you would have to pay taxes on any profits you made directly from the Futures market, your spread betting activities will be totally exempt from such considerations.

Example of a Commodity Trade:

Envisage that you have just noticed the price of gold breaking to the upside on your trading chart. In addition, after studying all relevant fundamental and technical aspects you conclude that this precious metal is now entering a new bullish trend.

Your spread betting broker offers you a spread of £1,350: £1,352 for June Gold. As such, you opt to execute a long spread bet wagering £100 per point at $1,352.

A little time later, news is released disclosing that a major central bank has begun buying extensive amounts of bullion which helps the spread of your June gold to soar upwards to £1,412: £1,414. You decide to exit your bet at this point by selling at £1,412. Consequently, you collect a profit equaling 60 times £100 = £6,000.

Controlling your Spread Betting Fears

Experts have mastered the art of trading commodities using spread betting so that they are able to secure consistent streams of profits from this activity. One of the major reasons that they are able to achieve this objective is that they have learned to control and subdue distracting emotions, such as fear. If you are novice, then you are well-advised to follow in the same path.

How do so many beginners fall into the trap for letting fear dominate their trading decisions? Well, you may have been attracted to spread betting by the substantial publicity and advertising promoting the image that you will become rich quickly. However, after a brief period of trading you could have discovered that your confidence has significantly dropped because you would have found that spread betting is harder to trade successfully than you initially imagined.

During this time, you could even have suffered a sequence of distressing losses that left you with a reduced budget and very stressed. At this time, fear usually begins to surface which can have a very dissipating influence on the health of your trading psychology if left unchecked.

For instance, you could begin to become more anxious about entering new spread bets because of the fear of suffering further losses. If you do activate new bets, you could grasp at profits rather than letting them run their full course. This is because you fear that sudden price reversals could eliminate your profits and even produce further financial losses.

How do you solve these difficulties and maintain your fear under control? To do so, you must solve one serious common trading error. This is trying to derive trading decisions that are constructed using the instant analyses of all the new trading situations that you encounter. If you keep repeating this bad technique, then increasing fear could make you to activate new spread bets that are based on your emotions and feelings.

In contrast, you must devise or attain a spread betting strategy that is well-constructed, tested and able to generate more wins than loses. You must then follow its strict set of rules consistently with no deviations. You must elevate the importance of your strategy so that it becomes the main influence on all your trading decisions and that you will only activate new spread bets after it has flagged you to do so. This is because you have to realize that spread betting is capable of producing the unpredictable price formations.

Consequently, you will often be confronted by a series of involved trading situations that will require that you produce quick quality decisions. You must always rely on your trading strategy to help you perform this task as it is your best decision-making resource. In contrast, if you depend on your own instant analytical analysis then you could experience very indifferent trading results. You must always locate and design techniques that are capable neutralizing fear.

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