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Home / How to Trade Oil

How to Trade Oil

Learning how to trade oil is a pursuit of many private commodity traders. Oil is one of the market’s most frequently traded commodities. It is an essential commodity globally, required across multiple industries. Yet, the same elements that make demand for oil high also make knowing market prices problematic. Knowing how to trade oil can be challenging, but potentially very rewarding. The diversity of forms, companies, and regions that oil originates from make determining winning trades a coveted skill. In fact, everything from weather patterns to war can impact oil prices, making gathering and understanding a variety of information crucial when learning how to trade oil.

Oil can be traded using several different types of financial instruments. Options, futures, CFDs, spread bets, exchange traded funds (ETFs) and more can give access to oil. Determining the best product and strategy for how to trade oil can be very difficult given the number of methods available. Trading, of course, is a very individualistic endeavour. At Accendo Markets, CFDs are the most popular instrument used to trade oil.

Volatility

Market volatility can be an important consideration when determining how to trade oil. Rapid price changes, coupled with leverage can make a winning trade into a loss in a matter of seconds. Part of this is because of an increase in large companies trading commodities. A large financial institution, making a large trade, may move the price of oil a whole percentage point, rather than a few cents in either direction. Conversely, these moves can also result in significant profits. It is important that the trader takes steps to mitigate these risks by using tools such as stop-losses, and maintaining trading discipline whilst learning how to trade oil.

Hedging

Large companies that use oil regularly, such as airlines, utilities companies and more, use oil futures as a hedging method. When learning how to trade oil, knowing this information can often give investors information into where those investors believe oil prices will go. In a futures contract, a purchaser typically buys the right to purchase 1,000 barrels of oil (e.g. light sweet crude oil) at a particular price on a certain date. If, on that date, the price of oil is higher they can purchase the oil at the lower rate. If the price is lower than that which is stipulated on the contract, the purchaser is obligated to buy the oil at that price. Taking an offsetting position (e.g. another futures contract) for the same number of barrels for the same time period can close positions, so a trader does not need to wait for expiry.

Different Instruments

Buying futures contracts is one method of many when considering how to trade oil, yet for many it proves inconvenient, old-fashioned and cumbersome. Another method for trading oil is using CFDs. CFDs allow you to learn how to trade oil whilst limiting your risk with guaranteed stop-losses. This means that you’ll know your downside, with certainty, before entering into the trade. You can trade CFDs with Accendo Markets, either online or via a broker. Whatever you choose, your dedicated broker can help you learn how to trade oil.

Oil ETFs (exchange traded funds) are a simple way to bring this commodity into your portfolio. Accendo Markets offers ETFs on CFDs. As with a future and CFD, you do not actually own the oil. Rather, the fund consists of other forms of financial instruments (for instance options, futures, and forward contracts for different petrochemicals) and an investor owns a portion of those underlying instruments. Many traders like ETFs as they are very simplistic to both purchase and sell, much like CFDs.

Don’t forget, all financial products mentioned on this page are leveraged. Please pay attention to the risks before learning how to trade oil.

 

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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