A Complete Guide to Oil Trading
Are you looking for a complete, reliable guide on oil trading? Lucky for you, this article has a detailed guide on oil trading and its benefits.
Author:Habiba AshtonReviewer:Liam EvansMay 18, 202247K Shares941.5K Views
Are you looking for a complete, reliable guide on oil trading? Lucky for you, this article has a detailed guide on oil trading and its benefits.
Oil is the most heavily traded commodity on the market. Speculators, investors, oil producers, and refiners who want to hedge their exposure buy it.
What Is Oil Trading?
Oil trading is purchasing and selling oil to make a profit. It could be exchanging the physical commodity or speculating on its market price. Also, the oil market is trendy due to the volatility caused by changes in supply and demand.
Oil Markets You Can Trade
Tons of various types of oil are traded globally and used as a source of energy. If you find oil markets on crypto trading platforms like 1k daily profitor news, note that they refer to oil benchmarks. Two main types of oils can be of use to price each other they are small and more independently produced types of oil, and they include:
- West Texas Intermediary [WTI] is the leading benchmark for oil prices worldwide to gauge supply and demand. WTI comes from North America; the New York Mercantile Exchange division of the Chicago Mercantile Exchange trades its oil futures.
- Brent Crude. The oil blend is sweet and a light crude oil extracted in the North Sea. This type of crude oil futures trades on the Intercontinental Exchange. It is also the leading oil benchmark for oil prices across Africa, European, and the Middle East oil markets, which account for two-thirds of oil production.
Each crude oil has varied features depending on where it gets manufactured and refined, and as a result, it will have a higher or lower market value than that of the benchmark oil based on how close in the constituency they are to each other. Even though the benchmark price will fluctuate, the cost of other crude oils will always remain the same about it.
How To Invest Using Crude Oil Futures
Crude oil futures are futures contracts in which buyers and sellers of oil coordinate and agree to deliver specific amounts of physical crude oil on a given date.
Oil producers can sell futures contracts that match up to their expected future production, and by doing so, they can effectively lock in current prices. Even though futures contract prices change every day, a seller receives financial credit when futures prices go down, offsetting the drop in oil markets.
Benefits Of Oil Trading
Crude oil futures have huge profit potential, so it is one of the most active derivatives on the market. Here are a few advantages of trading oil.
- It is an irreplaceable asset that is always in constant demand; hence the supply is limited. Investors can take advantage of the situation to plan that the prices will probably increase if there are no technological breakthroughs that remove the dependency of every industry on this asset.
- Liquidity. Oil futures are one of the most liquid assets due to the volume traded each day. In addition, the most actively traded commodity is crude oil.
- It is much easier to trade oil than other commodities. You only require a knowledgeable broker to help you, but the trading strategies are less complicated than forex or other commodities.
- Oil futures trading offers leverage, much like the foreign exchange market. You can purchase the product with borrowed money from the broker.
Bottom Line
Taking the first steps to start trading oil, especially oil futures, is complicated, and opening an account is not always guaranteed. But once you do the two things, the process becomes more straightforward. Also, oil trading is a lucrative business with many benefits, including the ones we have mentioned above.
Habiba Ashton
Author
Liam Evans
Reviewer
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