Things to be Aware of
In our commodity examples we use Trade Nation to illustrate our points, however keep in mind that what most of what applies to Trade Nation applies to most other spread betting providers – although one has to note that different providers might have slightly different policies.
Trading Hours
Different markets have different trading times, so it is important that you know exactly when they are open to trade. This is particularly important for commodities, as some of them have very restricted trading periods and price sensitive news may be released when a market is actually closed.
For example, the spot gold market trades 24 hours a day and Trade Nation quotes it 24 hours a day. But Trade Nation only quotes sugar between 08.00 and 19.00.
All the market and Trade Nation trading hours can be found by clicking on the Market Information link at Trade Nation
Tick Sizes
Commodities are traded in varying ‘standard’ trade sizes, quantities and tick sizes on the different underlying exchanges. But with Trade Nation, trading commodities is as simple as trading any of our other markets. As a general rule, you will be trading on the last large figure of the price quoted. Some prices maybe quoted with an extra smaller integer at the end, which is not the tick size.
For example, you might buy £1 of soybeans at 650. Here, the Trade Nation sell price would have to move to 651 for you to make a profit of £1 (i.e. 1 full point per £1 profit or loss). But if you traded in £1 of high grade copper at 1.8878, the Trade Nation price would have to move 0.0001 for you to be making a profit (or loss) of £1.
Delivery
If you open a commodity trade, the spread betting provider might have a corresponding hedge in the underlying futures market. This underlying hedging position is subject to exchange rules and possible delivery of the physical product. When trading underlying commodity futures, traders may keep their positions open up until the official delivery date on which they may be required to either take delivery of (if they have a long position) or deliver (if they have a short) the physical commodity.
However, because the majority of market participants in the underlying commodity futures markets are investors and speculators who do not want to actually deliver or receive any physical commodity, most future contracts are expired a few days before the delivery date.
Expiry
Commodity contracts usually expire in the month before their stated contract month. For example, the Brent Crude June contract will expire around the middle of May and the Silver September contract will expire towards the end of August. That is because when Trade Nation hedges its clients’ positions (i.e. your trades), it uses the real contracts in the underlying market and these become due for delivery in the month prior to the stated contract final expiry. As Trade Nation does not want to take delivery of a tanker of oil or a few tonnes of sugar, it expires these markets a few days before the first delivery day.
Contract Rollover
You can choose to roll over your positions from the current contract month, as quoted by Trade Nation, to the next contract month. This works in the same way as rolling over an index future.
Trade Nation will close your original position at the mid¬point of the current quote meaning that you do not pay any additional spread on closing the existing position. If you had a ‘buy’ trade on the September Brent Crude contract that was about to expire but you still wanted to hold this position in oil, you could sell your existing position, using a ‘sell’ trade on Trade Nation September contract, via the trading platform. You could then ‘buy’ the October contract on at the same time.
But if you did that, you would be paying the full spread for both markets to roll your position. It might be cheaper to telephone Trade Nation dealers and request a roll over, as they will close your existing trade on the mid-point of the spread and then place your new position at the current quote for October.
You can rollover a commodity futures contract yourself online but if you did so, you might end up paying the full spread twice. By doing the rollover over the telephone with some providers you can save up to half of the spread on one side of the deal.
Most people that hear of financial spread betting don’t realise for various reasons quite how easy and profitable it can be, but also the variety of differing products to which you can trade within. One such product that is gaining more and more popularity is trading in UK House Prices.
