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How to trade oil?

ForexZig.com February 19, 2013
How to trade oil?

How to trade oil?

In our previous article we marked the benefits of oil trading.

But what are actually the ways to trade oil?

On the international market oil is traded with futures. Futures is a standardized derivative that gives you a future supply of raw material at a specified date and the payment is at a fixed price in the moment. You earn if until a certain date the future price rises above that you have paid.

Of course, you reach a real long secure delivery at less than one percent of cases, because there is hardly any speculator who actually wants to be shipped 1,000 barrels of oil, which are the standard futures. The size of the futures makes it a little uncomfortable for trading by small investors.

Financial institutions, however, have solved this problem by offering contracts for difference based on this tool, as in this way it is made smaller and more accessible to mainstream investors.

Here is an example. Contract for Difference based on oil in Karroll is on 100 barrels. Therefore, in oil price of $ 37 one contract cost you 3,700 dollars. In 3% margin, you must have in your account 111 dollars in order to trade it.

Traps

Of course there are pitfalls. The change in the price of oil leads to $ 1 plus or minus $ 100, if the result is negative, you risk to lose the entire amount you have. Therefore, it is advisable to have a significantly greater amount in your account, to avoid a change in price during the day that can lead to loss of your funds.

Another catch is in the transfer of the contract from month to month. Usually, Commodity Futures with delivery in the next month are with the lowest premium. Futures for next month expire every third Friday of each month. At the same time, futures for next month are often traded at significant premiums.

If you leave open positions on Friday at the expiration of futures, they will automatically be renewed by the next month. But risk is to have a significant difference between the closing price and the one on that you will find them. That is why oil is not the most appropriate assets that can be held for a longer period, especially on the background of the volatility during recent months.

Related articles -> Something about oil trading

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