Energies Example
IG Markets enables you to take advantage of the volatility in energies markets. The examples below show you how.
Buying Brent Crude Oil
It is early July, and the price of Brent Crude is around $112 a barrel. You believe it is going to rise, so you decide to buy one contract of September Brent Crude Oil. One contract is the equivalent of $10 for every cent movement in the price of a barrel of oil.
Our quote for September Brent Crude Oil, which does not include the decimal point, is 11272-11278, so you buy one contract at 11278, meaning you will make or lose $10 for every point the sell price rises above or falls below 11278.
Towards the end of the month Brent Crude prices have risen and our quote is now 11730-11738. You decide to close your position and take your profit by selling one contract at 11730.
| Profit | |
|---|---|
| Opening level | 11278 |
| Closing level | 11730 |
| Difference | 452 |
| Profit: 452 points x 1 contract x $10 per point = $4520 | |
Of course, if the market had moved against you, you could have made a loss that exceeded your initial deposit.
Selling Brent Crude Oil
Limited Risk protection is available on the majority of our markets.
This can be especially useful when trading commodities, as the underlying markets often operate a system of price limits. Limited Risk protects you against the possibility of being locked into mounting losses should the market go 'limit down' or 'limit up'.
Opening the position
On the morning of 6 July you think that the price of Crude Oil is set to fall further but you want to limit your potential risk. So you decide to sell one contract of September Brent Crude Oil with Limited Risk protection (one contract is the equivalent of $10 per point).
Our quote for September Brent Crude Oil is 11272-11278. With Limited Risk transactions, you pay a premium on your opening price. So your position is opened at 11272 (bid price) minus 4 (the Limited Risk premium) which equals 11268.
Placing the Guaranteed Stop
Your position is opened at 11268. You decide to put your Guaranteed Stop at 11318. So the most you can lose on your position is:
| Maximum possible loss | |
|---|---|
| Stop level | 11318 |
| Opening level | 11268 |
| Difference | 50 |
| Maximum possible loss: 50 points x 1 contract x $10 per point = $500 | |
Triggering the Guaranteed Stop
Your predictions initially prove correct, and over the next couple of hours Brent Crude prices fall to 11216. However, the next day Brent Crude prices jump suddenly and within a few hours our quote has risen to 11644-11650.
Your position is automatically closed at 11318. You have lost $500, but the Limited Risk protection saved you from a potential loss of nearly $4,000.
The Right Choice
- 7000 share CFDs and over 60 forex pairs
- 99.5% of trades executed in 0.1 seconds
- Spreads from just 0.8 pips on forex and 1 point on indices
