Reasons for spread betting on commodities include:
Volatility – The commodity markets are very volatile making it a very attractive market for spread betting as it means an investor can make huge profits (as well as losses). Volatility can be driven by any number of factors, for example, the price of oil can be impacted by one of or a number of the following:
- War in the oil producing regions
- The Economy/Level of unemployment – can people afford to fill up their vehicles
- Storage facilities – disruption at a major facility can create supply shortages
- Many, many others.
These factors are just a few of the things that could affect the price of oil. If you are about to start with spread betting broker you need to be aware of the factors that will impact the price of that asset. Research the commodity before you start spread betting!
Alternative methods of investing in commodities are hard to access – Individual investors cannot easily buy futures and options on commodities such as gold and silver as they may be prohibitively expensive or too large. Spread Betting allows you to take a much smaller position and it is as easy as logging in to your broker account.
Diversification – Commodities can help balance your investment portfolio as it gives you exposure to assets that may not be directly correlated to the markets. For example, gold is seen as a safe haven in a falling market.