Example of Spread Betting on Commodities

You want to place a bet on the price of Crude Oil. Say, in this hypothetical scenario, the spread trading price of oil on January 3rd is $99.95 -$100.00 and you think the asset has been over-bought given the current state of the economy. You therefore decide to sell oil at £2 a point, a point being $0.01, i.e. you are going to make £2 for each $0.01 the closing crude oil price is below $100.00 and you are going to lose £2 for each $0.01 the closing price is above $99.95.

Let's also say you want to limit your risk and set a maximum potential loss at £200, so you set a stop at 200 points above the opening level at $101.95.

• What happens if the price of oil decreases to $97.95 - $98.00:

Opening price - $100.00

Closing price - $98.00

Difference - $2.00 or 200 points

Profit – 200 points * £2 = £400

• What happens if the price of oil moves by in the other direction? The price of oil increases to $101.90 – $101.95

Opening price - $99.95

Closing price - $101.95

Difference - $2.00 or 200 points

Loss – If a stop had not been placed your loss would have been £400 (£2 * 200 points), but as you placed a stop at you have limited your loss to £200