spreadbet on oil ETC - contango?

[Delboy007]

Hi,

I am considering placing a spread bet on a brent crude exchange traded fund with IG index. The bet is due to expire in December this year. I would like to know whether my position will be affected by contango / backwardation? My understanding is that if I bought an ETF (rather than simpy bet on the movement) I would almost certainly be affected by contango or backwardation (contango in current market conditions with oil) but I am unsure whether this is still the case if i am making a spread bet on the movement? Does IG make any adjustments to counteract this phenomenon for example.

All comments welcome.

Many thanks.

 

[MrMiyagi]

what is you're etf investing in? is it just a proxy for the brent futures or is it something else?

 

[Delboy007]

It is

"ETC Crude Oil (Dec - 09)"

from IG Index. No other details or branding. Value is c. 2,000 at present. Any ideas?

 

[MrMiyagi]

It is

"ETC Crude Oil (Dec - 09)"

from IG Index. No other details or branding. Value is c. 2,000 at present. Any ideas?

this is basically an etf proxy for oil. simply buying this etf is a bet on direction of oil. the forward price curve has no real relevance here at all..

 

[Delboy007]

Ok. Many thanks. Is there anything I should be particularly aware of if using this product? Is it a decent product for a beginner to use? What is the likely relationship between the nominal index and the spot price of oil?

Say price of the EFT is 2000 when brent crude spot is c. $50. If i think spot price will touch say 65 (or 15% increase) before December (when the bet expires). Would you expect the EFT to hit 2300 at $65 (ie. 15%), making me c. 300 if i go a pound per point?

All help very gratefully received.

 

[MrMiyagi]

If oil interests you then its a good thing to trade.. contrary to what a lot on here think, I don't think there is such a thing as a beginners market. Just get stuck in. I don't know a thing about the etf you've found.. but one thing I've noticed is that you state the brent product in your first post then the generic crude product in your next, which implies it's based on WTI crude, now you're back on Brent.. confusing. Why complicate stuff? if you think oils going up, bet on oil, forget the etf's unless you're using them for a specific reason.

 

[elitejets]

The ETF's really suffer from the rollover when it is in contango. Retail investors take all the pain IMO.
Lets hope it is not as dodgy as the USO ETF.
Here are some articles ... They are not about the ETF you are considering but ...
http://ftalphaville.ft.com/blog/2009/02/25/52879/a-self-propelled-pyramid/
http://ftalphaville.ft.com/blog/2009/02/27/53030/regulator-probing-uso-oil-etf/

Nic