Tips for Understanding Commodities Spreads

Let’s face it, the term commodities spread betting is enough to make most people’s eyes glaze over. But if you’re thinking about getting involved in commodities trading, it makes sense to find out everything you can about spread betting. If you don’t you could end up with a major loss on your hands. And since you’re understandably looking to make some cash from this form of investing, I’m guessing that wouldn’t be very good news.

The good news

Spread betting on commodities can be done tax free. So there is your first indication that this is worth a closer look.

The bad news

Well not so much the bad news but the realistic news – spread betting is a risky proposition. It’s a bit like penny stocks – they’re cheap and attractive and you can make a lot of money on them if you pick the right ones. But if you get it wrong (as many people do) you could lose a lot of cash. Spread betting is much the same.

So what is spread betting?

Well it is a form of betting, let’s get that clear. You are betting on whether a particular commodity is going to go up or down in value. For example you might think grain is woefully underpriced at the moment and is ripe to rise in value. So you put a spread bet on that fact and hope you’re right. If you are right you’ll make money on your bet. If you’re wrong you’ll lose the money.

Some people compare spread betting to wagering cash on a horse race. You can look at form and history and use those as a guide to what could happen in the future. But of course anything could happen in the actual event, and that is what makes spread betting so risky.

A key tip for improving the odds

One thing you can do is to become educated in the commodities you want to put spread bets on. For example you can learn more about house prices and where they currently stand if you are interested in putting spread bets on them. Or you can look into any other commodities to see how they work and where the prices currently stand.

Another good tip is to practice and follow spread betting and examples of betting to see whether you have got things right. Think of it as using play money to see whether you would have made a profit on your chosen bet. This is a good way to play realistically and to set aside those romantic notions that you’ll always be in with a successful result.