Since oil is a global commodity, geopolitical events in oil-producing regions—such as conflicts in the Middle East—can lead to volatility in oil prices. For example, any disruptions in key oil-producing countries like Saudi Arabia or Russia can cause fears of supply shortages, leading to price increases. A Contract for Difference (CFD) is a financial derivative that allows traders to speculate on the price movement of an asset without actually owning the asset.
Choosing an oil trading strategy
Crude oil prices are influenced by their source and current market dynamics, fluctuating with supply and demand. Unlike purchasing crude oil directly at current rates, these derivative products let you capitalize on price shifts without ownership. Through CFDs, you trade on the difference in value from when you open to close a position. Given oil’s market volatility in recent years, this can result in either gains or losses.
WTI vs Brent oil prices
Political instability, conflicts, or sanctions in key oil-producing regions can disrupt supply, often causing prices to rise. Rates, terms, products and services on third-party websites are subject to change without notice. We may be compensated but this should not be seen as an endorsement or recommendation by TradingBrokers.com, nor shall it bias our broker reviews. Whilst we try to keep information accurate and up to date, things can change without notice and therefore you should do your own research. Not all CFD brokers are created equal, and traders must be diligent in choosing a reputable broker. Unregulated brokers or brokers with poor execution can expose traders to additional risks, such as slippage and unexpected fees.
Here are several factors that significantly impact oil prices:
These external factors are vital for your understanding of the oil markets and help to form part of your fundamental analysis. In order to open a position, traders are only required to place a small fraction of the full trade value, otherwise known as a deposit. However, this proposes a higher risk at the same time and can cause you to lose money when trading.
Traders only deal with price movements, which makes trading oil CFDs more convenient and accessible than owning physical oil. By leveraging these resources, traders can develop a well-rounded understanding of the oil market and make more informed trading decisions. WTI, or West Texas Intermediate, is known as a light sweet crude oil, which flows easily and requires less refining than its heavy or sour counterparts. WTI is considered a US-centric crude oil, and delivery for WTI futures contracts takes place in Cushing, Oklahoma, located at the crude oil cfd heart of America.
Company
This sensitivity means that oil prices can be volatile and move sharply when major news breaks or unexpected events occur. Stay updated with the global newsIt is essential for you to stay informed about all global news that could impact the oil market and its prices. This awareness will enable you to forecast future prices and market trends, allowing you to make well-informed decisions when placing entry and exit orders. Place an orderPlace CFD trades with predefined stop-loss orders to effectively manage market risk.
When you execute a trade, you agree to exchange the difference in oil prices from when you open the trade to when you close it. When you trade the oil markets you have a choice to either trade CFDs on the oil spot price, futures or options. When trading CFDs on the oil spot market you would need to pay for overnight funding.
How much capital do I need to trade oil CFDs?
The two most commonly traded benchmarks of crude oil are Brent and West Texas Intermediate (WTI), both of which are available on our online trading platform. Oil trading has been an essential part of the global financial markets for decades. For those looking to profit from price fluctuations in the oil market without owning physical commodities, Contracts for Difference (CFDs) provide an accessible and leveraged way to trade. This article explores the ins and outs of oil CFD trading, explaining what it is, how it works, and how traders can engage with this popular financial instrument. Oil trading can be profitable due to the highly active market and the numerous external factors affecting oil prices, creating frequent trading opportunities.
Let’s say that after opening your position, the subsequent oil price increases to £55 per barrel and you decide to close the position. In order to assess your profit or loss, you then multiply the difference by the size of the trade (£5 x 100). With us, you’ll get trading alerts when the oil market price moves some points above or below the level you’ve set. Note that despite setting these alerts, it remains your main responsibility to monitor your position.
- Oil CFDs (Contracts for Difference) are derivative contracts that allow traders to exchange the difference in the value of crude oil prices between the opening and closing of the contract.
- CFDs are ideal for traders looking for flexibility, higher leverage, and no physical delivery concerns.
- Cooperation between key producers like Russia and Saudi Arabia in managing oil production levels can significantly impact global oil prices.
- The difference here is that we will be using the EMA 10 as our basis for taking a long or short position, once a rejection from this EMA occurs with a filter condition met.
What is Maintenance Margin in Leverage Trading?
- Futures, however, are better suited for long-term traders or businesses needing standardised contracts and hedging options, with the possibility of physical settlement.
- Oil CFDs allow you to trade on the price difference of oil from when you open to close the contract.
- With CFD trading, you agree to exchange the difference in value between the time that a position is opened and closed.
- Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
- The two most commonly traded benchmarks of crude oil are Brent and West Texas Intermediate (WTI), both of which are available on our online trading platform.
- These events often cause price spikes due to delayed shipments or damaged infrastructure, creating opportunities for speculative trades based on expected supply disruptions.
Cooperation between key producers like Russia and Saudi Arabia in managing oil production levels can significantly impact global oil prices. Agreements between these major players often influence supply, either stabilising or disrupting global markets. TradingBrokers.com is for informational purposes only and not intended for distribution or use by any person where it would be contrary to local law or regulation. We do not provide financial advice, offer or make solicitation of any investments. Trading and investing in financial instruments comes with a high degree of risk and you can lose money. You should only engage in any such activity only if you are fully aware of the relevant risks.
This can be avoided by opening longer-term positions on the underlying oil market by trading futures or options. Economic indicators, such as GDP growth, industrial production, and employment figures, can influence oil demand. In periods of economic growth, the demand for oil tends to rise, leading to higher prices. They aim to be long on oil when prices are rising and short on oil when prices are falling. Oil traders hope to profit by selling their long positions at a higher price than they initially paid or by buying back their short positions at a lower price than they originally sold.
This caused the price of WTI (USOIL) to shoot up by approximately 580 pips on the subsequent Monday. This ability to take long or short positions allows traders to exploit various market conditions. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. It does not take into account readers’ financial situation or investment objectives. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted. By starting with these simple yet effective tools, traders can develop a solid foundation in technical analysis and enhance their ability to make informed trading decisions in the oil market.
WTI is seen as a lighter and sweeter alternative crude oil with a lower sulphur content. Given the fact that Brent is sourced close to the sea, this reduces transportation costs in comparison with WTI, which is sourced from land. This can affect the price of both WTI and Brent CFDs when it comes to buying and selling raw commodities. Both types of crude oil serve as vital benchmarks due to their ability to provide market stability, price transparency, and a basis for global oil trading.
We therefore advise our clients to create an effective risk management strategy when trading on CFD oil prices. Crude oil CFDs are flexible instruments that allow traders to speculate on oil price movements without worrying about expiration dates. You can hold positions indefinitely and choose smaller, customizable contract sizes. CFDs typically offer higher leverage, meaning you can control larger positions with a smaller initial investment.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% 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, CFDs, OTC options or any of our other products work and whether you can afford to take the high risk of losing your money. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
You can go long (‘buy’) or short (‘sell’) on the rise and fall of the oil markets. The best time to trade crude oil CFDs is during high-volatility periods, typically overlapping with the opening hours of major oil markets, such as New York and London. Traders pay attention to market sentiment, geopolitical events, and economic trends, which can lead to speculation and price volatility. Sudden shifts in demand or supply, driven by events or trader expectations, often result in rapid changes in oil prices.