A guide to investing in commodities

One of the major benefits of spread betting as opposed to traditional forms of investment is that it provides you with the opportunity to make trades on a wide variety of markets and instruments, including equities, forex and commodities.

While the vast majority of those investigating just what financial spread betting is will have even the most basic awareness of stock markets and currency pairings, there is a tendency for inexperienced traders to steer clear of the many commodities markets on offer.

This is understandable at first, as there are some subtle quirks that differentiate commodities trading from other investments, but once you are aware of those, you will find that the possibilities of making significant gains are numerous and bets on these markets can often be some of the most profitable.

The appeal of commodities lies in the volatility of the markets, but it is important to note that this can work against you, as well as in your favour. Therefore, it is vital that traders implement a strategy and stick to it, closing open trades as and when they reach the desired profit level. All markets can change quickly, but this is especially true of commodities.

Another key consideration is the hours of trading offered by your spread betting provider. If you are used to trading forex pairings, you may have become accustomed to placing bets at any time of the day or night.

However, the majority of commodities markets close at specified times. If you have an open position at this point, you will not be able to close it until the markets reopen. This can cause significant losses as the price of the commodity may well have swung significantly in the intervening period and the opening price on the next trading day could be drastically different from the closing price in the previous session.

There are a number of factors that influence the level of volatility in commodities, many of which will be headline news. Despite this, it is necessary to ensure you are constantly aware of any events or incidents that could affect prices.

These include adverse weather conditions, natural disasters, threat to supplies from conflict in the region, storage issues and diseases that may affect crops.

When taking your first steps into commodities trading, it is a good idea to make small bets until you become accustomed to the market in question. For example, wheat may regularly react in a certain way to changes in the weather, so getting a feel for the market and its variations will leave you better placed to make more profitable traders a little further down the line.

Soft commodities such as sugar and wheat will have busy seasons and times when trading is subdued – usually during winter. However, they will get markedly more excitable when the weather becomes an important factor in growth and harvesting. Being aware of these variations will help to ensure you are not caught out by the markets.

It is also important to be aware that commodity prices are usually given in US dollars. However, another major benefit of spread betting is that you are able to trade in your native currency – which also provides you with the opportunity to make leveraged gains on