Oil Trading Basic


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Oil Trading Basic

  1. 1. Oil Trading Basics
  2. 2. In this era of globalization and internet, trading around the world has become very simple. Now People are doing trading sitting right in their homes but there is yet a trading field which has very high profit potentials and is still unexplored. This field is none other than Oil trading . Trading oil is exactly the same as trading Forex, stocks , or anything else.
  3. 3. Oil Trading, as opposed to buying shares, allows two big advantages. The first is that we can profit from falling prices just the same as rising prices, by selling rather than buying. The second is 'leverage' which allows us to effectively buy huge quantities with just a small deposit.
  4. 4. This means we can pocket a decent profit from a small move up or down in price. Of course, this is potentially risky but we always put in an automatic 'stop loss' to close the trade. So, that if the price moves against us by a set amount then we can control the damage.
  5. 5. Likewise, we put in an automatic 'limit' to close the trade for a set profit. Many Forex brokers also allow you to trade oil, so setting up an account is no problem at all.
  6. 6. The amount of capital you require for oil trading varies from broker to broker but most will trade mini contracts and need only a few hundred dollars in your account. The actual risk will be even lower than this because they put in a stop of 90 pips (a $0.90 move on the price of oil).
  7. 7. There are two types of Prices going on in the Oil market, namely spot price and future price. The futures price is simply an estimated price for oil for delivery at a set date in the near future. It really makes no difference to our trading but before jumping into Oil trading you must familiarize yourself with the basics terms of oil market.
  8. 8. There are 3 different types of crude oil in the oil industry. They are classified by geography, namely light (WTI), Brent North Sea, and Oman (sour).Crude West Texas Intermediate (WTI) is a very sweet high quality oil .This is the most common type of crude oil, which is trading in oil futures pit at the New York Mercantile Exchange.
  9. 9. Then, there's Brent crude sourced from the North Sea. Brent crude oil is light and is ideal for the production of gasoline. Dubai and Oman crude is a light crude oil extracted from the Dubai and surroundings. The extraction site is important because it affects the cost of transport to the refinery.
  10. 10. Light crude oil is more desirable than heavy oil because it produces higher yields of gasoline, while sweet oil commands a higher price of oil.  Trade in crude oil futures these various markets is relatively simple because all the same basic factors that contribute to the economic and in their prices.
  11. 11. Last thing, do keep in mind that Oil Trading in futures involves a high degree of risk and is not suitable for all investors. As, History or Past performance is not indicative of future results. Therefore, before trading in oil, you must get the basic knowledge of the Oil market and oil trading.