When operating with raw materials, it is mandatory to be familiar with the product we are buying or selling.

Each raw material has its own unit of measure. Next we will see the units of measurement of the most negotiated raw materials

CommodityUnits
Crude OilBarrell
GoldTroy Oz
SilverTroy Oz
PlatinumTroy Oz
CornBushels (100)
SoybeansBushels (100)
WheatBushels (100)
Natural gasmmBtu
Heating oilGallons
GasolineGallons
Coffee Clbs (100)
Sugar no.11lbs (100)
Coffee No.2lbs (100)
Brent OilBarrell
PalladiumTroy Oz
Copperlbs (100)

For example, crude is traded in barrels. Therefore, in the table of our order below, the number we write in “quantity” will be the number of barrels we want to buy or sell in short.

In this example, we are buying 50 barrels of crude at $ 103.83 per barrel (in our previous article we mentioned that all raw materials are quoted in US dollars).

If we bought 50 barrels of crude oil without leverage, the operation would cost us $ 5,191.50 at its current price (50 x $ 103.83).

However, thanks to leverage, we do not need to have that amount in cash to open a position of that size. Our broker will lend us the money for that position and we will only have to contribute the required margin. Imagine that the leverage for crude oil is 100: 1. This is equivalent to saying that the required margin is 1%, that is, we will only have to contribute 1% of the size of the position and our broker will lend us the money necessary to open it.

Therefore, for a position of 50 barrels of crude oil that costs $ 5,191.50, the margin required would be $ 51.91 (1% of $ 5,191.50). That is all we would need in our account to open this position.

Type of operationPurchase
InstrumentRaw
Trading volume50 barrels
Current Market Price$ 103.83
Cost of Trade without Leverage$ 5,191.50
Margin Requirement (Leverage)1% (100: 1)
Used Margin for Trade$ 51.91

If our trading account is denominated in another currency, that $ 51.91 would be converted to our currency at the applicable exchange rate.

Let’s look at it with another example using gold as an instrument. Gold is measured in ounces, so in the “quantity” box, we will have to write how many ounces of gold we want to buy or sell. Let’s think we want to sell 10 ounces of gold shortly.

In the table of the order above, we see that the market price of gold is $ 1326.60 per ounce. Therefore, if we wanted to sell 10 ounces of gold shortly without leverage, this position would cost us $ 13,266.00 (10 x $ 1326.60). Again, thanks to leverage, we do not need to have that amount in cash to open a position of that size. Imagine that the leverage for gold is 200: 1. This is equivalent to saying that the required margin is 0.5%, that is, we will only have to contribute 0.5% of the size of the position and our broker will lend us the money necessary to open it.

Therefore, to sell 10 ounces of gold at a market price of $ 1326.60, the required margin would be $ 66.33 (0.5% of $ 13 266). That is all we would need in our account to open this position.

Trade typeShort sell
InstrumentGold
Trade size10 Troy Ounces
Current Market Price$ 1,326.60
Cost of Trade without Leverage$ 13,266.00
Margin Requirement (Leverage)0.5% (200: 1)
Used Margin for Trade$ 66.33

If our trading account is denominated in another currency, that $ 66.33 would be converted to our currency at the applicable exchange rate.