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HOW TO TRADE COMMODITIES ON TRADING 212
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Dec 1, 2022
This is a complete beginners guide to trading commodities such as Oil, Gold, Wheat, Lumber etc on Trading 212. When you are trading commodities on Trading 212 you are trading with CFDs which track underlying futures contracts in the commodities markets. I will go through how the margin requirements work on trading 212 as well as well as a price calculation to help you understand how CFDs work. Just a disclaimer that CFD are risky and volatile instruments therefore you should not trade with them unless you fully understand how they work. This video is for educational purposes only. Thank you for watching, if you enjoyed the video and want to see more make sore to subscribe to my channel.
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This video is for anybody who is completely new to trading commodities
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What I will be covering in this video is first I will go and have a look at Trading212
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and show you all of the different types of commodities that you can trade on that platform
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When you are trading commodities on Trading212 you are actually using CFDs
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Technically it's actually a CFD of the future but we won't get too technical. A CFD which stands for Contract for Difference is essentially just betting on the price direction
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of the commodity. In this video I will go through a practical example of trading a barrel of oil
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just so you can see all of the different calculations on how an actual CFD works
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So I'll show you exactly how you calculate your profits because when you trade with CFDs you're
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often trading on margin so I'll explain exactly what that is and how that all works and ties into
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the calculations also. So first off I'm just going to take a quick look at all of the different types
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of commodities that you can trade with on Trading 212. So I've just come on to the list they have
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here on their website and it's going to go through it here so for example you can trade with cheese
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you can trade with coca or coffee beans you can even trade with copper or oil or cotton or loads
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of different types of commodities so as i'm going through the list here so you have gasoline feeder
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cattle gold lumber and natural gas just a name but a few but you have a huge choice there on trading
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212 and as i'm going through this list here you will probably also notice here that they have a
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minimum quantity that you can trade for each type of commodity and they also have your margin
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percentage. But first off the minimum traded quantity that is the lowest unit of that particular
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commodity that you can trade. So whether it be say a bushel of wheat or a barrel of oil. So they have
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their lowest kind of common unit size and that is what they mean by that. Next up one important thing
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to also mention is where you can actually access these on the Trading212 site. So they have two
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different types of accounts on Trading 212 if you're outside of the UK they have the investing
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account and the CFD account and if you're in the UK they also have the ISA accounts but for anybody
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who is going to plan on investing in commodities then you want to get access to the CFD account and in order to get access to this account you might have to do a small questionnaire just to prove that you understand what CFDs are before they actually let you go and trade them So if you just tap the little icon in
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the top left hand corner of the screen you will be able to switch between the different types of
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accounts. Now with all of that out of the way let's go and have a look at a practical example
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Before you open any position on any commodity it is very important that you look up the commodities
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margin percentage or leverage ratio which are pretty much the same thing. So let's have a look
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at this first. So if you click on the instrument details on any of the commodities that you're
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interested in then you will be able to scroll down and find this information. So as I can see here for
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Brent crude oil the margin is 10% or it's 1 is the 10 leverage ratio. What this essentially means is
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if I want to bet on the price of Brent crude oil I only need to put up actual 10% worth of the cash
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to open up a position on one whole barrel. So for example the price of one barrel at the moment is
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about $72 but if I want to bet on the price of that barrel moving then I only need to put up
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about 10% which is about $7-$20 to bet on the price of that moving. So that way you are getting
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exposure to a whole position with only having to put up 10% of the actual capital. So that is the
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benefit but also the risky side of trading with CFDs because you are actually investing with
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borrowed money. This margin of 10% will actually be locked up on trading 212 so it will still be in
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your cash but you can't use it until either you cash out your position or else you make such a
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loss that they have to close your position. And that's the reason that they lock a little portion
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of your cash is because if the price goes in the opposite direction to what you have bet they want
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to have a bit of cash there to cover your losses. So let's say I want to bet on the price of oil
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increasing but it actually decides to fall. If it falls enough to cover the amount of margin that I
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put up at the start then what will happen is I will get margin called so
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when you are margin called you have two options you can either put in more funds to build up your margin again or else you can just completely close your
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position I'll quickly just show you what this actually looks like now on the
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trading 212 app so I just searched for Brent crude oil here as you can see there lots of different types of Brent crude oil commodities here and they all have different expiration dates So that all of the different types of futures that are on the market So the reason that there are different expiration dates on all of these is because these are the actual futures contracts that our CFDs are actually trading on top of
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So we are betting on the prices changes of these futures contracts. So a futures contract for example is just a hedging tool
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So what it is basically is say if I was in a business where I needed to have a cup of the barrels oil in a few months time and I was worried about the price changing, then I would go into a contract that locks in the price so I am sure of what the price I'm going to be paying is in a few months time
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So that's what these futures contracts were set up to do. But the CFDs that we are now trading are just betting on the price changes of those contracts
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So the position I'm just going to open up is the Brent crude oil 30th of July 2021
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if I want to bet on the price of Brent crude oil going up I will hit the buy I'll open up a long
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contract and if I want to bet on the price of Brent crude oil going down I will hit the sell contract
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so this is the buy contract here and so my position is opened and then if I come back to
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my overall account here and I click on my account balance you will see here that I have some blocked
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funds. I have some block funds there for oil Brent and Lufthansa you can ignore that I was just
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messing around earlier on on my phone but so that is essentially my block funds my margin that I put
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up. So the price of the Brent crude oil there was $73 so I put up a margin of about 10% of that which
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is $7.2 and that's translated back into euros there so so it's probably about six euros something
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that I have locked there in cash that I can't use until I either close my position or else I lose it
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Next up, I just want to briefly go through a profit calculation just so we completely understand how you calculate your profits and how the margin works with all of that
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So let's say, for example, I wanted to open a position on barrels of oil again
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So let's say the price of a barrel of oil at the moment was $72 and I wanted to bet on the price movement of five barrels of oil
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So five barrels of oil at the price of is a total value that I actually betting on is Because the margin is only 10 I only have to lock in 10 of my funds to actually open this position And this 10
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is equal to 10% of the $360, which is $36. So if the price of oil then decides to go to $77
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that will mean my value of my contract is now gone up to $385 and I have made a profit of $25
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So in percentage terms that is really 69% because you've only had to put up $36 to open a position
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and you're making a $25 profit. So that's kind of where the margin you can make kind of high
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percentage profits quite easily just because you're putting up a very low amount of capital
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at the start but then if the price decided to drop to $65 for example then the value of my contract
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would have fallen to $325 and that would be a loss of $35 and as you saw over here I had a margin of
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$36 so at that point I'm very close to being margin called so if the price of oil dropped a little bit
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further there again I would be margin called I would either have to put in more cash just to
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restore my margin or my position would be closed altogether and I would sign off with a loss then
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of $35 which would be a loss of really of 100% because I would have only put in $36 and I would
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have also lost $36. So this is essentially why CFD investing is a lot riskier than normal investing
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in stocks. Like if you invest in a stock or something for example the most it's going to
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move is a few percentage points in a day. You might be up at most maybe 5 or 6% or you might
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be down five or six percent on a bad day but here you could easily be up 20 30 40 50 percent or down
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the same within matter of a very short period of time so that's why you see if these are a lot more
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risky but also on trading two and two you have stop losses which you can use to try and cut off
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any losses before they get any way too big that's pretty much it for my explanation today i hope this
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video was some way useful and i hope you enjoyed it and thanks very much for watching if you did
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enjoyed make sure to hit that like button and subscribe to my channel so you're kept up to date
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