How Commodities Betting Works
There are two markets in commodities betting in the spot market and futures market. Typically commodities in the spot market are used by companies and producers that will use the materials traded.
The futures market is by investors, you, and speculators, as in this market, the commodities are not what is being bet on, but the price of them.
Basically, commodities betting is a contract with a price and a time period to complete the bet. You will bet on a certain commodity by buying or selling them, hoping to make a profit when the price of the commodities fluctuates.
Typically, if you make a commodities bet, you will not get the item bet on but roll it over or close them out to attempt to make a profit.
In futures commodity betting, there is more volatility potential in the fluctuations in the price of that commodity. The reason for this is that it is hard to gauge what the prices will be for a certain commodity in the future.
When there are changes in the environment of the market, investors will alter their position, and that, in turn, will have a significant impact on supply and demand, and that is what will determine the price of a commodity.
A simple example of a commodity bet is if you buy 10 ounces of gold at $1,500 per ounce. You decide to sell a month later when the price is $1,550. Your profit would be $500 (increase in price of $50 x 10 units = $500).
The Commodity ETF
ETF stands for exchange-traded fund, and a commodity ETF is that fund that you can bet on physical commodities like metals, natural resources (gas and oil), and agricultural goods (corn and wheat). Typically a commodity ETF is for one commodity with it being stored or bet on with future contracts.
There are also other commodity ETF’s where you can keep track of a commodity index that has many commodities with both the physical storage of it as well as its derivative position. Commodities ETF’s a short term bet for investors can be taken advantage of in the short term to make a quicker profit.
Commodities Spread Betting
Often, professional commodities brokers mainly focus on commodity spread betting, and you can do that as well. A spread bet is buying one commodity and selling the same one, or one that is similar, at the same time. Commodity spread betting is usually less risky than buying or selling commodities.
In commodity spread betting, you are buying or selling the point of movement, which is determined beforehand, for a commodity such as $1 per point. The $1 is the spread stake size, and for every point that the commodity price increases, you will make money.
You multiply the number of points the commodity increased by your stake, how much you bet, to get your profit. On the other side of the coin, if the price decreases for the commodity, you will lose money for each point that the price goes down.
An example of a commodity spread betting is if you buy corn in May and then sell wheat in May. When you sell a commodity, you are wagering that the commodity will go down in price so that you would sell and hope your bet is right and then buy it for less closing out to them make a profit.
Types of Commodities Spreads
The main futures spreads are:
- Intra-market – This type of spread is also called a calendar spread and is buying and selling of the same commodity but in different months of the contract. An example of this spread would be buying corn in November and selling wheat in June.
- Inter-market – This spread is the buying and selling of commodities that are not the same but are related. They are correlated commodities but a reason why one would be stronger than the other one. An example would be the buying of silver and then the selling of gold.
- Inter-exchange – This is the buying and selling of the same commodity but is traded on with exchange that is different. So buying corn futures on one exchange and then selling corn on another exchange.
How to Pick a Commodities Betting Broker
Once you know you want to make commodities bets, whether futures or spread, you will need to use a commodities broker or a commodities betting site. They are plentiful and easy to find, and in the United States alone, there are over 1,500 licensed commodities betting brokers.
You need to make sure the broker site you use is a licensed one, and brokerage firms from different countries will have different licenses. However, that is the most important thing to look for, as you want a licensed broker since they are legitimate and can legally take commodities bets.
You also want to check out the platform that is used in the commodities bet. Look to see if you will be able to use that platform for all of your commodities betting needs.
Many sites will offer a demo platform where you can use it for free to try it out, and you should take advantage of this option, as with the demo mode, you can get to know the platform and how to use it before betting with real money.
A couple of other things to look for in a commodities betting broker are banking issues and customer service. Since you will be depositing and withdrawing from your bets with the broker, you want to make sure it is a quick and easy process.
In terms of customer service, you want to ensure that the broker you use can be easily contacted so they can help you out if any issues arise.