Spread Betting Oats
As an example of the flexibility of spread betting, consider that you are able to bet on oats futures. Futures have long been known as one of the fortune makers in the financial world, as well as one which must be treated with respect to avoid going broke. They are simple to understand, but can take some study to be able to trade them effectively.
A futures contract is simply a contract between two consenting parties, one to provide goods and the other to buy them at a set future date. Everything flows from this simple concept. The futures market is highly organized, defining exactly how much and what quality of goods are being traded, and also providing some security that the contracts will be enforced.
The original reason for a futures contract was to allow suppliers and buyers to have some certainty that trade would continue in the future. The growers know that they can get a certain amount for their effort and time growing a crop, whereas the buyers, perhaps in this case cereal manufacturers, know that they can get the raw goods they need to continue production.
Because they could, speculators got involved in this market when they found that for a fraction of the total value they could control a large amount of goods, and therefore profit (or lose) from changes in the price of those goods. The leverage available is what makes the futures market potentially so profitable, and can also cause bankruptcy.
Spread betting in this respect, with the ability to bet on anything of financial consequence, provides a much more convenient way to profit from the change in futures prices. Rather than being a set contract, with a certain value that may be more than you are prepared to risk, when you spread bet you can name your own price, and thus control your profit and loss.
There are several factors that you need to bear in mind when you are spread betting on oats. It is a commodity that can flourish or suffer from natural causes, such as the weather, or from disease and other influences. Unless you are prepared to follow the news on such events, you might find yourself caught out.
Another point to bear in mind is that most commodities are priced in US dollars. While your spread bet will be in pounds sterling, euros, or whatever your spread betting provider chooses to deal in, the actual number that you are betting on is US dollars, and therefore if the exchange rate changes, you can expect an impact on the price. For instance, if you are a trader, buying wheat from Australia, and the US dollar weakens against the Australian dollar, then the Australians will want more US dollars for their products, and the futures price may well go up.
As with all financial trading, the key is to have a sound and tested strategy, and form a trading plan from that strategy. Test it thoroughly before you risk your money, and remember to honour your stop losses in order to preserve your capital.
Spread Betting on Oats
You may be attracted to spread betting on oats futures, as an alternative to other financial markets, as the futures prices can move dramatically and give good potential opportunities for profit. Here’s a recent daily chart of the oats prices: –
As you can see, it has been a general decline for a while. Futures prices will fall when weather conditions are favourable, as more of the crop will be produced. This is one of the variables outside your control which you have to keep an eye on.
You may notice some jumps in the price on the chart above. These are not gaps in the normal sense on the price chart, as they are simply the absence of a number of weeks pricing. Spread betting on futures is usually based on four quarters of the year, and a few weeks before the futures delivery date your spread betting provider will cease to offer the bet, for logistical reasons.
The current contract offered by IG Index is for May, with a price quote of 311.0 – 311.0. Because the value is so low, they require a minimum bet of £10 per point. If you think that the downward trend will continue, and the price of oats futures continue to fall, then you will want to place a short or sell bet on this commodity. Perhaps you choose to stake £35 per point.
If the price falls, and you close your spread bet for a win when it reaches 297.3 – 297.5, then you can work out how much you have won like this: –
- Your short spreadbet was placed at 311.0.
- Your bet closed at 297.5.
- Therefore you have won 311.0-297.5 points.
- This works out to 13.5 points.
- Your bet was for £35 per point.
- Therefore you have won 13.5 times £35.
- Your total winnings are £472.50.
Of course, sometimes the spreadbet will not go your way, and this can happen no matter how hard you study the previous charts, looking for a clue to the future direction. There may even be news after you had placed the bet, such as bad weather affecting crops, and this can derail the most careful technical analysis of the price chart.
Whatever the reason, you need to allow for losing bets, and be prepared to minimize your losses by closing the bet quickly, as soon as you realize that it is not going to win. You do this either by having a set level, a stop loss, which you would put on as soon as you make the bet; or even if the stop loss level has not been reached you could review your reasons for making the bet, and decide that the reasons are no longer valid, and close the bet immediately.
Say the price went to 314.7 – 314.9, and you decided to close the spreadbet and minimize your losses.
- Your short spreadbet was placed at 311.0.
- Your bet closed at 314.9.
- Therefore you have lost 314.9-311.0 points.
- This works out to 3.9 points.
- Your bet was for £35 per point.
- Therefore you have lost 3.9 times £35.
- The total amount you lost is £136.50.
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