Commodities Market Betting

Published: 14/09/2012

Commodities markets rank among the most volatile in the world. They are influenced not only by natural supply and demand but also by political situations, investor speculation and even changes in the weather. Among the most heavily traded commodities are gold and oil, but the markets also include other metals and energy resources as well as various crops and livestock—pretty much anything that can be extracted from the Earth through mining, drilling or harvesting.

Commodities trading dates back some 3,800 years to Babylonian farmers who sold their grain in advance of harvests. This practice allowed many unforeseen events to be avoided, from profiteering during droughts to price slumps following bumper growing seasons.

The Chicago Board of Trade was established in the 19th century to regulate and standardise trading in forward contracts for commodities know as “futures.” In the 1960s, futures markets opened up for non-agricultural products—first gold and silver and then copper, platinum, oil and natural gas.

The ability to buy or sell forward on regulated exchanges gave raw material producers, traders and consumers the ability to limit risk by hedging against adverse price movements. Short selling became as easy as buying.

Now, it is possible to go online and wager on how the prices of commodities will shift, without any intention of ever taking possession of the goods they represent. This is commodities market betting, one of the fastest growing aspects of financial wagering. From the futures of U.S. Light Crude Oil to London Wheat, virtually anyone, anywhere can take a stake in the markets and profit from dramatic price movements.

At Ladbrokes, for example, Fixed Odds Betting opportunities are offered through Cantor Gaming & Wagering Limited. Wagers can be made on the prices of IPE Brent Crude Oil (as traded on the Intercontinental Exchange – ICE); Nymex Crude Oil – West Texas Intermediate (as traded on the New York Mercantile Exchange); and Gold and Silver (as traded on the Chicago Mercantile Exchange - CME). Betting intervals can be as brief as five minutes or as long as a full day.

Web sites such as gnuTrade provide three ways to wager on oil and gold during a 15-hour trading day, from 7am to 10pm GMT, Monday to Friday. Bettors may wager on the per point rise or fall of the respective markets, place simple bets on whether markets will go up or down, or else back other traders and share in their success (or losses).

At IG Index, Spread Betting on commodities is the primary pursuit. It features several advantages over trading the equivalent futures markets, such as the ability to take smaller minimum bet sizes, the flexibility to go long or short on a range of markets, and the availability of so-called “Controlled Risk Options,” such as Guaranteed Stops and Trailing Stops to bail out of a trade if it breaks through certain predetermined limits.

One detail commodities market bettors will want to be mindful of is currency risk. Oil, for example, is typically quoted in U.S. dollars per barrel. When wagering in Sterling, for instance, one does not want to be subject to exchange rate fluctuation, so bets should be opened on the basis of 50p or £1 per point, not in actual dollars.

Of course, the excitement and danger of commodities market betting is found in price volatility. A market can remain static for long periods and then suddenly see prices rise or fall by huge percentages. Examples of such markets are those for coffee, cocoa and orange juice. Their prices are quite capable of doubling or halving over a relatively short period of time, often as the result of unpredictable weather conditions.

Published on: 14/09/2012

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