Four commodities spread betting traps to avoid

By Deputy Editor Tim Bennett Jun 18, 2010

Tim Bennett

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As more and more brokers offer spread betting, you can now trade most of the world's major commodities. So whether you prefer 'hard' commodities such as copper or gold, or 'soft' commodities such as sugar and coffee, there's plenty of choice. However, if you are new to the commodities world, make sure you don't plunge into any of the following traps.

Volatility

Many commodities markets – for silver, say – are much smaller than say the market for a currency such as the dollar or an index such as the FTSE 100. So prices can spike and dip quickly. If in doubt, trade small amounts initially and use stop losses.

Tick sizes

Anyone used to trading, for example, the FTSE 100 index will be also used to betting, say, £10 for every one-point movement in the index. But watch out when trading commodities, as the minimum movement on the contract for pricing purposes (the 'tick' size) may be much smaller. Get this wrong and your losses will rack up much faster than you expect.

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Trading hours

Out of hours trading is possible in most markets, but spreads are often wider when the main market is closed. So always check with your broker.

Contract expiries

Most commodity contracts have different expiry dates. These might be the last Friday in the third month for a standard financial contract with quarterly expiries (March, June, September and December). However, some commodities expire monthly and others will not even expire in the contract month – so an 'April' contract will often expire in the last week of March. Knowing this will help you avoid paying unnecessarily to 'roll over' a contract into the next expiry month.

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Published in Spread betting explained | More articles by Tim Bennett

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