Commodities Examples
Selling Daily Spot Gold
It is Wednesday, 1 December 2009 and the price of gold has been rising consistently over the past few months thanks to investors identifying it as a safe-haven asset in turbulent financial times.
However, technical analysis you’ve undertaken indicates that the price of gold is approaching an upper limit and is now set for a reversal.
Opening the position
Our Daily Spot Gold price stands at 1209.1–1209.6. To back your prediction, you decide to ‘sell’ £20 per point at 1209.1, but want to absolutely limit your risk so choose to place a Controlled Risk bet which adds a premium of 0.3 to the ‘sell’ price, making it 1208.8.
You want to limit any potential losses to a maximum of £400, so place your Guaranteed Stop 20 points above your opening level, at 1228.8. The deposit required for this kind of bet equals the maximum amount you can lose: in this case, £400.
Closing the position
Throughout the day the price of gold continues to rise but never reaches the level required to trigger your stop. The next day however, the price of gold begins to fall, and by the afternoon of Friday, 3 December 2009 our price stands at 1162.1–1162.6 and you decide to take your profit by ‘buying’ £20 per point at 1162.6.
The result
Profit on deal
| Opening level | 1208.8 |
| Closing level | 1162.6 |
| Difference | 46.2 |
Profit: 46.2 x £20 per point = £924
Buying US Light Crude Oil
It is the morning of 25 February 2010 and you believe the price of oil is set to rise.
Opening the position
Our Daily US Light Crude price stands at 7998–8002. You decide to ‘buy’ £20 per point but want to limit any potential losses so opt to place a Controlled Risk bet – for which you pay a premium of 2 on the dealing spread. You buy £20 per point at 8004 (offer price of 8002 plus 2).
You want to limit any potential losses to £800 so place your Guaranteed Stop 40 points below your opening level at 7964. The deposit required for this kind of bet equals the maximum amount you can lose: in this case, £800.
Closing the position
Against your expectations, the price of oil falls sharply throughout the day, dragged down by a rise in the dollar and after a surprise jump in US unemployment. By lunchtime, our Daily US Light Crude price has fallen to 7898–7902 and your Guaranteed Stop has been triggered, closing your position.
The result
Loss on deal
| Opening level | 8004 |
| Closing level | 7964 |
| Difference | 40 |
Loss: 40 x £20 per point = £800
Later in the day, the price of oil continues to plummet and by late afternoon our US Light Crude price stands at 7742–7744, meaning you could have potentially lost over £5000 had you not had the Guaranteed Stop in place.
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