Hedge or take a position on a range of fluctuating commodity prices with City Index. City Index offers a range of commodities including crude oil, cocoa, coffee, sugar, wheat and soybeans with margins from just 3%.
Let's say our US crude oil monthly CFD price is 7880 bid /7886 offer (sell price/buy price).
You think that demand for US crude oil is rising and expecting prices to rally, decide to buy (go long) 2 CFDs at 7886 (buy price). You were right: Over the coming days, the price of US crude oil rises on surging demand. When prices reach 8010, you decide to cash in your profits. We are now quoting a monthly futures spread of 8010/8016. To close your trade, you sell 2 CFDs per point at 8010. Result: You bought at 7886 and sold at 8010, representing a 124-point move in your favour, which with your trade of 2 CFDs nets you a profit of US$248 (8010 – 7886 x 2 CFDs). Alternative scenario: If however, you were wrong and US crude oil prices had fallen to 7762, you would net a US$248 loss (7886 - 7762 x CFDs).
You think that US crude oil stockpiles are outpacing demand, and expecting prices to fall, decide to sell (go short) 2 CFDs per point at 7880 (sell price). You were right: Over the coming days, the price of US crude oil falls on weakening demand. When prices reach 7754, you decide to cash in your profits. We are now quoting a monthly futures spread of 7748/7754. To close your trade, you buy back 2 CFDs at 7754. Result: You sold at 7880 and bought back at 7754, representing a 126-point move in your favour, which at your trade size of 2 CFDs, nets you a profit of US$252 (7880 – 7754 x 2 CFDs). Alternative scenario: If however, you were wrong and US crude oil prices had risen to 8006, you would net a US$252 loss (8006 - 7880 x 2 CFDs).
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City Index is a trading name of GAIN Capital Australia Pty Ltd.
The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. GAIN Capital recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.