Commodities trading is the purchase, or sale of a commodity for investment or speculative purposes. When you trade CFDs on commodities, you never actually own the ‘physical’ asset such as an ounce of gold or a barrel of oil, nor will you have to take delivery at the settlement date of the contract. Instead, you are just trading the difference between the price at what you enter the trade and the price you close the trade at.
Commodities can be either ‘Spot’ or ‘Futures’ – Our gold and silver CFDs are spot contracts and are based on the current market spot rate, the most commonly quoted prices for these commodities. All our other commodities CFDs prices are based on the front month future, which are the most liquid futures contracts on each commodity.
When you trade spot Gold or Silver you will need to pay a ‘swap’ for each night that you hold your position over. The Swap rate is a financing charge similar to when trading shares. You can see our current swap rates here in our Product Specification sheets.
If you trade ‘future’ commodity CFDs you are trading on a futures price, so the financing charges are built in to the price which means there is no overnight swap rate to pay.
Future Commodities have an expiry date, however, STO rolls your position on to the next expiry date automatically unless you request for us to close it or even close it yourself. This is usually done either on the weekend prior to expiry or the weekend before that. We will look to notify you by email prior to rolling the contract to enable you to take action to manage your positions accordingly.
When you trade commodities CFDs you will buy at the ‘ask’ or ‘offer’ price if you think the product is going to rise in value – so for example, if gold was quoted at $1751.3 - $1751.8 then you can buy gold at $1751.8. The difference between the ‘bid’ price ($1751.3) and the ‘ask’ price ($1751.8) is known as the spread, in this instance, the spread is $0.5.One of the great advantages of trading CFDs is the ability to sell something ‘short’ – that is sell it even though you don’t own it, in anticipation of a fall in its value. So for example, if you thought that crude oil will fall in price because of an easing of tensions in the Middle East, you can sell it at $88.85. If oil does indeed fall to say $87 and you close your trade you will have made 185 points profit. But caution is required of course, as escalation of violence may trigger a spike in the price of oil to $90 or more, whereby you will now have a losing position. That is why it is recommended by many trading experts that you should always trade with a ‘Stop Loss’.
Risk Warning: Forex and CFDs are leveraged products that incur a high level of risk and it is possible that losses exceed your investment. Please ensure that you understand the risks involved and seek independent advice if necessary. Please read carefully our Risk Warning