Spread Betting on Gas Oil
The Gas Oil spread bet is more properly known as the London Gas Oil or LGO bet. It has been an active market in the past, as with all energy contracts, and will no doubt continue to provide opportunities for those who can stay ahead of the news and make their own decisions.
The price has been over 1300 a couple of years ago, but is now hovering around the 1000 level. In the long term it is almost certain to increase, but given the volatility and political nature of the energy market, this is not sufficient cause for taking a long position.
At first sight, there are a few gaps on this chart from IG Index which would make you wary of taking out any sizable bets – but if you look further at the original chart, you will see that these occur at discontinuities in the date line, indicating that the commodity was not being traded for a couple of weeks each time. For instance, the gap on the 7th February occurs because the previous entry is for 10th January. The actual chart of LGO shows a steady decline to a level of 931 on the 22nd January, then an increase including a couple of 16 point candlesticks to get to the 7th February value.
In general you can see that this is a lively chart, with some long candle days for the spread better who’s interested in short-term profits, and upward trends that last for a week or more for the trader who takes an intermediate view of the market. London Gas Oil is similar in performance to other oil futures, such as heating oil or Brent crude, and will suffer from the same dependence on political manoeuvres.
It is interesting to see the extent to which the Bollinger Bands helped to define the movement of the price, with textbook hesitations at the centre line, forming either support or resistance depending on the direction of approach. In addition, the outer bounds of the bands on the gas oil chart clearly show how they can form a boundary to the price with very little in evidence of penetration.
When you’re trading on an energy contract, you must keep in touch with the international markets, and how embargoes, limitations, and energy goals are progressing. Gas oil is one of several different types of oil. Oil can be heavy, even to the point of needing be heated so that it can be pumped effectively, and the US oils tend towards this end of the spectrum. The oil which is pumped from the Brent field is lighter, and has less sulphur content. Gas oil is similar to diesel fuel and has a relatively low boiling point, about 500 to 600 degrees Fahrenheit, which is higher than petrol or paraffin but not as high as industrial fuel oil or lubricating oils.
To trade on the futures market for gas oil, you must prepare a trading plan and test it thoroughly before using your money. The oil futures have many professional traders and you need to be able to compete with them.
Spread Betting on Gas Oil
If you are tempted to enter the competitive financial market of oil futures, spread betting is a way to use a familiar trading system that allows you to easily control your risk. The current spread betting quote on London Gas Oil is 1028.3 – 1029.8, and looking at the technical analysis you may decide that it’s worth a long bet of £50 per point – it has a minimum bid of £20 per point with IG Index, and other spread betting companies will impose a similar restriction as the absolute value is fairly small.
If the market continues to go up, you may look for it to reach a point of perhaps 1062.1 – 1063.6 before you close your bet and take your profit. If you want to work out for yourself how much you have won, it is easy to do.
Your long bet was placed at a price of 1029.8, and it closed at the selling price of 1062.1. That means you have gained 1062.1 less 1029.8 points, which is 32.3 points. You bet a total of £50 per point, which means you have won 32.3 times £50, which is £1615.
If on the other hand the uptrend in the market stalled, and the value started to drop, you would need to close your bet quickly to minimize your losses. Say the price went down to 1024.2 – 1025.7, and the trend seemed to be over, then you could close your bet.
The starting point for your bet was 1029.8, but this time it went down to a level of 1024.2. This means you have lost 1029.8-1024.2 points, or 5.6 points. With your starting stake of £50 per point, this amounts to a loss of £280.
As a second example of a spread bet on the gas oil futures, perhaps your technical analysis told you to expect the price to fall in the short term, and you placed a short bet for £35 per point at 1028.3. If it works out, you may close the bet when it falls to 998.7 – 1000.2, representing the 20 day SMA that may be expected to give some support.
This time, your bet went on at 1028.3 and was closed at 1000.2, the buying price. This means that you gained 1028.3-1000.2 points, or 28.1 points. You staked £35 per point, so this gives you a total profit of £983.50.
Once again you may have been incorrect in your bet, and the market may have gone the wrong way. This happens more often than you would like, but is something you must accept and work with if you are trading for a profit. You will profit as long as your losing bets are smaller than your winning bets, even if you have the same number of each.
Perhaps the market went up to 1035.7 – 1037.2, and you closed your bet for a loss. The short bet went on at 1028.3 and closed at 1037.2, a loss of 8.9 points. Therefore you lost £311.50.
Join the discussion