SPREAD BETTINGON COMMODITIES
Commodities are tradable assets, or speculative assets, that are available in several forms including agricultural, metals, energy and other forms. Over the years, there have been moves away from the notion that crude oil and gold are the only commodities to trade. With leading spread betting providers, it is possible to diversify your financial portfolio to include a wide range of commodities, including all of the above. The interchangeability of commodities is especially important. In other words, 1 ounce of gold will be priced at exactly the same rate in the United Kingdom, the United States, Canada or South Africa at any particular point in time.
Inherent Benefits of Spread Betting Activity
The prices of commodities at spread betting platforms may be based on long-term futures prices for the spot price of the commodity in question. The vast majority of spread bettors tend to trade WTI crude oil, Brent crude oil and gold, but there is a growing interest in trading soft commodities as well. Soft commodities include soybeans, corn, cocoa, orange juice, oats, cotton, wheat and sugar. One of the most interesting benefits of spread betting activity on commodities is that your profits are tax-free. You also have a greater degree of flexibility over the amount of exposure you have to the commodities markets, especially when compared to futures markets.
There is the notion that spread betting is the domain of expert traders; but nothing could be further from the truth. There are inherent risks in all forms of trading and rules have to be learned and processes need to be understood to generate profits with spread betting activity. It is true that soft commodities such as foodstuffs tend to be highly sensitive to weather phenomena, climate, supply/demand, changing preferences and the like. If your timing as a spread bettor is off, you could lose substantially in soft commodities trading.
Major Benefits of Spread Betting over CFD Trading
- There is no capital gains tax, no stamp duty and no commissions – just the spread
- You can spread bet in the currency of your choice with substantial control over your overall exposure
- Spread betting is available on rising markets, and falling markets
- spread betting makes use of underlying market prices and you have 24-hour dealing available to you
With CFD trading, your losses can be offset against your profits for tax purposes, you can deal on rising and falling markets as well, there is 24 hour dealing and no stamp duty, and all commodities prices are based on underlying market prices. The difference is in the degree of control you have over your deals, the tax-free advantages of spread betting, the size of your deals and your exposure to international markets et cetera – these are all spread betting advantages.
Dollar-Denominated Commodities and Spread Betting Benefits
It is also important to bear in mind that many commodities are dollar-denominated assets which simply means that the price of those commodities will track the performance of the USD. When you are purchasing dollar-denominated commodities, currency exchange rates come into play. If the USD appreciates, the relative cost of gold and copper and iron ore will rise in foreign currency, but the demand for these commodities will decrease accordingly.
This is not the case when you’re purchasing Exchange Traded Funds, otherwise known as ETFs. Exchange Traded Funds are denominated in the currency of the country you are trading in on the exchange that they are listed on. If you’re in the UK, the ETF will be listed in sterling, in South Africa in rands, in Japan in yen. There are many advantages to selecting spread betting over conventional trading measures. For starters, spread betting does not require you to purchase the actual physical asset at the full market price.
Leveraged Trading and Shorting Commodities
Spread betting is a leveraged, speculative activity which means that you gain widespread exposure with little money down. You do not take possession of the actual commodities such as gold, silver, iron ore, steel, oil etcetera – you simply speculate on the future price movements of the underlying commodity. Another benefit to spread betting activity is the option to short commodities. Compared to ETFs, spread betting is far easier. In time to come, many analysts expect that the shorting of commodities will become a far more popular trading style, given that we have endured multiple years of bull market activity. After the Chinese economy entered a corrective stage at the end of 2015, commodities markets nosedived and the shorting of commodities has gained traction with spread betting traders across the board.
Ready to start spread betting on commodities? Check out our full UK Spread Betting Brokers Comparison!