Commodities Examples

Commodity markets can often experience dramatic changes in supply and demand, and consequent price volatility, offering opportunities for spectacular profits and losses. The examples below take you through trading soft commodity CFDs.

Selling London Wheat
Buying London Wheat

Selling London Wheat

It is 20 May 2011 and you believe wheat prices in the UK are set to fall, so you decide to take a position on November London Wheat.

At midday our price for November London Wheat stands at 194.8-195.3. You sell two contracts at 194.8, the bid price. In order to open your position you need to put down a deposit of £650 per contract, in this case a total of £1300.

A bearish report from the US Department of Agriculture, and an increase in sterling strength against the euro (making exports to the Eurozone less competitive) combine to drive down the price of London Wheat. A couple of days later, our price stands at 190.1-190.6.

You decide to take your profit and close your position by buying 2 contracts at 190.6, the offer price.

Your profit is calculated as follows:

Profit
Opening level	194.8
Closing level	190.6
Difference	4.2
Profit: 4.2 points x 2 contracts x £100 = £840

Buying London Wheat

It is 20 May 2011 and you believe wheat prices in the UK are set to rise, so you decide to take a position on November London Wheat.

Guaranteed risk protection is available on most of our commodity markets. This gives you a way to guard against sudden losses.

At midday our price for November London Wheat stands at 194.8-195.3. You buy two contracts at 195.3, the offer price, and pay a Limited Risk premium on your opening price. Your position is opened at 195.3 (offer price) plus 0.3 (Limited Risk premium) = 195.6.

Placing the Guaranteed Stop

You place your Guaranteed Stop 5 points away at 190.6, so the absolute maximum you can lose on your position is: 5 points x 2 contracts x £100 = £1000

In order to open your position you need to put down a deposit of £1000, as this is the most that you could lose.

A bearish report from the US Department of Agriculture, and an increase in sterling strength against the euro (making exports to the Eurozone less competitive) combine to drive down the price of London Wheat. At the end of May, our price has fallen as low as 186.8-187.3.

Your Guaranteed Stop was triggered as soon as the contract was offered at 190.6. Without it, you could have lost more than £1600. Instead your loss is calculated as follows:

Loss
Opening level	195.6
Closing level	190.6
Difference	5
Loss: 5 points x 2 contracts x £100 = £1000

Commodities Examples