Limited Risk protection is also available on all our Oils and Metals markets.
This can be especially useful as the underlying markets often operate a system of price limits. Limited Risk protects you against the possibility of being locked into mounting losses should the market go 'limit down' or 'limit up'.
Opening the position
You think that the price of Crude Oil is set to fall but you want to limit your potential downside. So you decide to sell two contracts of the May Light Crude Oil with Limited Risk protection (one contract is the equivalent of US$10 per point).
It is March and our quote for May Light Crude Oil is 7984/7990. With Limited Risk transactions, you pay a premium on your opening price. So your position is opened at 7984 (bid price) minus 4 (the Limited Risk premium) = 7980.
Placing the Guaranteed Stop
Your position is opened at 7980. You decide to put your Guaranteed Stop at 8020. So the most you can lose on your position is:
Maximum possible loss
| Stop level | 8020 |
| Opening level | 7980 |
| Difference | 40 |
Maximum possible: 40 points x 2 contracts x US$10 per point = US$800
Triggering the Guaranteed Stop
Your predictions initially prove correct and the next day Light Crude begins to fall, but following this, Light Crude rallies and our quote rises to 8065/8071. Your position is automatically closed out at 8020. You have lost US$800, but the Limited Risk protection has saved you from a bigger loss, potentially more than $1800.
Spot Gold is easy to trade with us: all deals are commission-free and we quote very narrow spreads.
Opening the position
It is March and you expect the price of gold to fall. Our quote is 1122.1/1122.6 and you decide to sell 2 contracts at 1122.1 (one 100 oz contract equates to $100 per full point). There is no commission to pay on any of our Spot Metals.
Interest adjustments
As you have taken a short position, your account is debited to reflect interest adjustments. The interest on your position is calculated daily, by applying the relevant interest rate to the daily closing value of the position.
Closing the position
A week later, the price of gold has fallen and we are quoting 1085.1/1085.6. You decide to take your profit, buying 2 contracts at 1085.6. Your gross profit on the trade is calculated as follows:
Profit
| Closing level | 1085.6 |
| Opening level | 1122.1 |
| Difference | 36.5 |
Gross profit: 2 contracts x 100 oz x US$36.5/ oz = US$7,300.
To calculate the net result on the transaction you would also have to take into account the interest adjustments.
Trading commodities CFDs is a great way to take advantage of the volatility found in commodity markets.
Opening the CFD position
It is Monday, 11 January 2010 and you believe wheat prices in the UK are set to fall, so you decide to take a position on May London Wheat.
At midday our price for May London Wheat stands at 111.5/112.0. You sell two contracts at 111.5, 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.
Closing the CFD position
A bearish report from the US Department of Agriculture on Tuesday and an increase in sterling strength against the euro (making exports to the eurozone less competitive) combine to drive down the price of May London Wheat throughout the week, and towards the end of the day on Friday our price stands at 106.0/106.5 – a 3-month low.
You decide to take your profit and close your position by buying 2 contracts at 106.5, the offer price.
Your profit is calculated as follows:
Profit
| Opening level | 111.5 |
| Closing level | 106.5 |
| Difference | 5 |
Profit: 5 x 2 contracts x £100 = £1000
*Please note that trading CFDs is a geared investment strategy, carrying a high risk to your capital. Only trade with money you can afford to lose. Please see our Risk Warning for more details.