Crude oil is the primary source of energy for economies across the world, making it one of the most actively traded commodities globally. Due to its positioning in the world’s political and economic systems, movement in the trading oil prices impacts a wide range of other commodities.
Also, the ripple effect of fluctuations in the prices of crude oil has a significant impact on other financial markets, including forex, stocks, and bonds. This presents investors and traders with excellent opportunities to make money across almost all market conditions. But how exactly do you make profits by trading oil? This article highlights insights on how to make money by trading in oil markets.
Understanding Oil Trading
Trading oil is a tool for investment, speculation, and hedging. Investors trade oil by anticipating changes in its prices. Oil prices are known to be highly volatile, as they fluctuate at the slightest of news and announcements concerning oi pricing. This makes it a favourite investment spot for risk-takers and professional traders.
However, when trading oil and gas, demand and supply are the most fundamental factors to consider. Regardless of a news event, economic report, or announcements by the Middle East, supply and demand must be taken into consideration.
This is because changes in the oil prices are highly dependent on the supply and demand factors of the commodity. Some of the supply and demand factors include oil consumers, oil producers, international politics, geopolitical tensions, and global oil supply.
What are the Benefits of Trading Crude Oil?
Trading in the oil market comes with a wide range of benefits, including the following;
The rapid fluctuations in the price of crude oil are the primary benefit of oil and gas trading. Traders capitalise on the volatility of oil prices through various oil trading strategies, including swing, intraweek, and intraday trading.
The danger of tying up all your investments in one market is that downfall in that market might result in an entire wipeout of your portfolio. Diversifying your investment portfolio by trading in the oil market can help you minimise this risk.
- Trading the Fundamentals
The success of trading in other security markets is dependent on technical signals to a large extent. This can be very not comforting for beginners. The good thing with crude oil trading is that you can rely on the market fundamentals to find profitable investment opportunities.
How to Trade Oil The Right Way!
There are 3 primary ways through which investors can trade the oil commodity.
- Oil Futures
An oil future is an agreement to buy a specified amount of oil at a set price for a defined timeframe. Trading oil futures takes place in futures exchanges. This is the most common method of buying and selling crude oil.
Note that it is not a must to have the purchased oil delivered to the trader. Futures trading oil can be sold before reaching the expiration date.
- Oil Options
Oil options work in the same way as oil futures. The only difference with oil options is that you can buy can specified amounts of oil at a set price and date, without the obligation trade. It is also possible to trade oil options without having to take the delivery of the traded amounts of oil.
- Oil CFDs
The other method of trading oil is through contracts for difference (CFDs). An oil CFD enables you to the speculate movement of oil prices without having to buy or sell the contracts. Oil CFDs can also be traded through leveraged providers instead of commodities exchanges.
Oil is considered to be one of the most liquid commodity assets globally. This means that there are high volumes of the commodity available for trading oil. You must, however, keep track of the factors that affect the demand and supply of oil to leverage your investment. As a trader, you have a wide range of methods to trade oil, including options, futures, and CFDs.
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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.