When I worked for one of the larger Contracts for Difference and financial spread betting brokers, we could see where most of the client trading activity was taking place. Over 85% of the volume was flowing through 10 spread betting markets, the usual suspects, like the FTSE 100, USD/EUR, oil, gold, S&P 500, you know the drill.
Most traders do not spend time researching new spread betting markets. Partly this is because they really do want to trade the big, headline-grabbing markets, partly they worry about spreads and liquidity. Here, however, are a few markets that are available on financial spread betting platforms that might bear a second glance when you have the time.
While first cultivated in China nearly 5000 years ago, these days the soybean market is dominated by crops from the US, China and Brazil. The soybean is now the second largest crop in the US after corn.
But the soybean is not just used for human food such as in tofu and imitation dairy products, it is also used as food for poultry and pigs and some types of farmed fish. It has also been used as raw material for biodiesel production.
Soybean futures and options are traded on the CME, Dalian Commodity Exchange in China and the Tokyo Grain Exchange. The Chicago contract will tend to be used as the underlying price for financial spread bets, and is quoted as dollars per pound.
The summer months are typically the most active and volatile for this market – heat or floods in the American Midwest can drive prices up, so keep an eye on US weather forecasts and on the Department of Agriculture monthly crop reports, which come out around the 10th of every month.
This is not the name of the bad guy from a Chinese historical martial arts epic, but part of a currency pair you will find on some financial spread betting platforms.
XAU is gold, expressed as a currency, while XAG is silver.
Gold continues to play a role in the considerations of many central banks around the world. Precious metals, because of their historical status as stores of value and currencies in themselves, have gained in value against paper currencies as central banks have printed money to facilitate quantitative easing.
These pairs allow you to trade precious metals against other currencies, to reflect the change in currencies against something a little more stable. This has been a popular trade since central banks embarked on their journey into QE.
The short sterling spread betting contract has seen little love from traders of late.
The spread bet is based on a futures contract that is priced as an inverse of the Bank of England base rate. Hence, with rates at 0.25%, short sterling would be at 99.75.
The short sterling contract is used by the market to bet on where it thinks interest rates will be in the future.
The price of the short sterling contract is always expressed with two decimal points, allowing you to trade on a per point basis like with currencies or indexes.
Up until recently, volumes on the short sterling trade were thin, but now that the Bank of England looks as if it will raise rates, expect to see more volatility here.
It is called the Fear Index, and its name is rightly earned.
The VIX is a measure of the implied volatility of S&P 500 options. It is used by traders and investors to try to gauge the volatility of S&P 500 stocks. It is quoted in percentage points, and is meant to represent the expected range of movement in the S&P 500 index over the next 30 days.
The VIX uses a 68% confidence level as to where the S&P 500 will be 30 days out.
A VIX of 25 means the market expects a 25% move within that time period. Note, however, this does not necessarily mean it will be up or down, but just that it will move.
A low VIX means the market expects a relatively smooth ride. As fear increases, and traders pile into options, the VIX reacts accordingly, hence its nick name.
Brazilian Real (BRL)
Most forex traders will focus on just a handful of markets, but those who like a bit of extra volatility have been trading the Brazilian real recently.
We called the BRL as our Short of the Week earlier this year. The BRL has come to reflect not only the Brazilian economy in recent months, but also the overall state of Brazil Inc.
A series of corruption scandals have afflicted the highest offices in the land, creating political turmoil and uncertainty.
The market – and investors – do not like uncertainty. Yet fundamentally, currency and politics aside, Brazil represents a good long term bet for investors, if only it could sort out its political situation.