Despite the growth of renewable energy, organic fuel makes up a vast majority of the world’s fuel at 84%. Fossil Fuel follows as the next, retaining the remainder 33%. Due to the high volatility of the oil trade, users have to suffer the risks of great losses but there’s a potential to make huge profits.
With such huge potential, you have to familiarize yourself with some of the best technical analysis tools to get knowledge of daily oil trends.
How to trade oil?
To trade oil, online exchanges and brokers offer a certain financial instrument that allows traders to speculate the price of oil. Some of these instruments include;
Contracts for difference (CFDs)
Share of oil companies
Exchange-traded funds (EFTs)
Each of these financial instruments depends on certain factors to function and they include;
Contract expiry dates
Physical delivery of assets
How to trade oil contracts for difference (CFDs)
Contracts for Difference CFDs are contracts signed between a broker and a trader in exchange for the difference in price for when a trade is initiated and ended. These contracts can vary or can be fixed based on the margin requirements of the broken of your chosen oil CFD.
Every broker offers traders a window to speculate the price of future oil contracts. However, contract sizes are quite smaller compared to the thousand barrels in future contracts. So how do these contracts work?
If you want to buy a certain amount of oil CFDs for $70.20 to $80. Note that the higher price is for longer contracts while the lower price is for short contracts for 10 CFDs on 3%, you would need $2400 in your account. How did I come up with this? You would multiply the price of your contract by the number of contracts by the number of barrels in a contract by the margin per cent.
So, to control your $80,000 worth of oil, you would need $2400. If there’s an increase in the price of oil to $82.50, you would have a profit of $2500 as the trade now has a total value of $82500. You can exit at this stage with your $2500 profit. However, if the price drops down to $75, you would have suffered a loss of $5 or $5000.
CFDs are important instruments and offer a high risk of losing money due to leverage. Around 53% – 83% of retail investors lose money trading on CDFs. Before trading on CFD, you should thoroughly understand how CDF works and if you can afford the effect of losing your money.
Tips for Trading in the Market
The defining factor is the source of success for every market including the oil market. To become successful at trading oil, here are some tips to help you mind your business;
Technical analytic tools are important to understand and analyse price charts and patterns to better understand the price movement future. You can sign up to any technical indicator software to monitor the highs of lows of the oil price within a period.
You have to study the psychology of all oil traders if you want to succeed. Understanding how oil traders act in certain conditions enable you to have a better knowledge of prospective market movement.
Supply and Demand
You have to keep up to date with the world’s supply and demand metric if you follow selected outlets that offer information concerning oil trading. You can follow outlets like Oil Profit.
If you follow these tips carefully, you should be able to trade oil on CFDs comfortably knowing what it entails. However, before you start trading oil CFDs you need to know how they work and work in collaboration with a reliable broker.