Your Four Minute Guide to Commodities Spread Betting

LONDON, November 5, 2010 /PRNewswire/ -- In financial spread betting, commodities are some of the most volatile and unpredictable products on which a trader can spread bet. From political developments to the weather forecast, a wide variety of influences can dramatically affect their prices in the spread betting markets. For this reason, it is vital that you understand commodities in detail before you start spread betting on them. This guide from spread betting provider Finspreads (http://www.finspreads.com) is designed to broaden your knowledge of commodities spread betting.

What are commodities?

In their essence, commodities such as gold, oil and wheat are goods which are interchangeable in any part of the world. For example, a barrel of crude oil would be worth the same whether bought in the UK or the USA. This is what sets commodities apart from products such as wine and cheese, which come in a variety of strengths, flavours, ingredients and so on, and consequently can vary greatly.

Why are the commodities markets so volatile?

As with many other products in their financial markets ( http://www.finspreads.com/our_services/spread_betting_markets.aspx), supply and demand force prices up or down, and the commodities markets are also significantly influenced by crop reports, weather forecasts, political announcements and seasonal factors. What makes commodities even more challenging from a spread betting point of view is that, a lot of the time, the news affecting them tends to follow the price movement, rather than the other way around. This makes effective risk management a crucial element of commodities spread betting.

What risk management steps are advisable in commodities spread betting?

Technical analysis can help you to assess just how volatile a commodity market can be before you risk any capital. Analyse some historical charts to see how wide the price bands it moves through tend to be. You can also manage your potential downsides in commodity spread betting by using guaranteed stop losses (http://www.finspreads.com/learn_to_spread_bet/managing_your_risk.asp ). These guarantee to close your spread bet at a precise trigger value without limiting your profit potential, incurring a small premium for doing so.

Alternatively, some spread bettors - those starting out with a limited balance, for example - simply choose to avoid commodities altogether and instead focus their spread betting on less volatile markets such as equities or indices. Whatever you choose to spread bet on, always make sure that you fully understand the risks beforehand.

Learn more about technical analysis with a free spread betting seminar. See http://www.finspreads.com/learn_to_spread_bet/spread_betting_seminars.aspx for details.

Spread betting carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.

SOURCE Finspreads