Commodities
Example #1. Buy Oil with Stocks (long position)
Opening position
On May 3rd of 2009, the shares of the ETF "Power Shares DB Oil Fund" are trading at 19 (bid) / 20 (ask) USD per share. The ETF shares are listed in the New York Stock Exchange-ARCA. The ETF tracks the Spot price of crude oil in USD. The spot price of one barrel of crude oil is at 50 USD per barrel.
An investor decides to open a long position on crude oil, since he/she expects that crude oil prices will go up. For this reason, he/she decides to buy 2,000 shares of the "Power Shares DB Oil Fund" ETF, making an investment of 40,000 USD (2,000 shares x 20 USD per share).
Closing position
Imagine that on July 18th of 2009 the spot price of a barrel of crude oil is at 60 USD and the shares of the ETF "Power Shares DB Oil Fund" are trading at 25 (bid) / 26 (ask) USD per share. Note that the ETF tracks exactly the price of crude oil (rise of 20%). The investor sells his 2,000 shares for a total value of 50.000 USD (2,000 shares x 25 USD per share) and pockets the profit.
Trade summary
Example #2. Buy Oil with CFDs (long position)
Opening position
You can purchase barrels of Crude Oil directly with CFDs without having to use an ETF as the underlying asset. Instead you can use a CFD with a Futures contract as the underlying asset.
On May 14th of 2009, the CFD with a Futures contract for Crude Oil with expiration on June 09 named "US Crude, Jun 09" as the underlying asset is trading at 54.96 (bid) / 55.00 (ask) USD per barrel.
An investor decides to open a long position in crude oil, expecting that price will go up. For this reason he decides to buy 500 Barrels of "US Crude, Jun 09" with CFDs, totalling 27,500 USD (500 Barrels x 55.00 USD per barrel). The margin required to open this position is 2,750 USD (10% margin).
Closing position
Imagine that on July 18th of 2009 the spot price per barrel of Crude Oil is 60 USD and the CFD with Futures contract "US Crude, Jun 09" as the underlying asset is trading at 59.95 (bid) / 70.02 (ask) USD per barrel. You decide to close your position and make a profit.
Trade summary
Example #3. Sell Oil with Futures (short position)
The Futures contract, named " Nymex miNY Light Sweet Crude Oil, Jun 2009", is listed in the Chicago Futures Exchange. This contract has the following characteristics:
Contract size: 500 barrels
Contract currency: USD
Required margin: 3,544 USD
Maintenance margin: 2,625 USD
Contract expiration: 19-06-2009
Opening position
On May 3rd, the spot price of a barrel of oil is at 51 USD. The Futures contract "Nymex miNY Light Sweet Crude Oil, Jun 2009" for the same date and time is trading at 50 (bid) / 52 (ask) USD.
Because an investor expects the price of oil to drop, he/she decides to open a short position by selling two Futures contracts at 50 USD per barrel. Therefore his exposure is 50,000 USD (2 contracts x 500 barrels x 50 USD per barrel). The margin required to open a position is 7,088 (3,544 USD x 2 contracts) USD.
Closing position
The investor decides to keep his position until its expiration on June 18th of 2009. As predicted, the price of crude has fallen to 39.5 USD per barrel. The contract "Nymex miNY Light Sweet Crude Oil, Jun 2009" is trading at 39 (bid) / 40 (ask) USD for the same date and time, so the investor buys two contracts in order to close his position.
Trade summary
