Worth over $2 trillion as of 2021, the oil market provides excellent trading opportunities reaping traders more than 7% of the total investment value as profits. Oil CFDs enable you to trade in crude oil without actually owning it. Instead, you only invest a small percentage of the total trade value while still reaping full profits.
Let's take a look at how to trade Oil CFDs and make the most of it:
What is Oil CFD trading?
An Oil CFD (Contract for Differences) is a contract that allows traders to trade oil price movements without actually buying crude oil physically. It is an agreement between the trader and broker where the difference in open and close value is exchanged when the trader decides to exit the market.
Oil CFDs enable trading with leverage as the trader is only required to deposit a small fraction of the trade value to enjoy profits on the entire position.
For example, if you decide to enter an Oil CFD trade at $100, which only requires you to deposit 10% of the trade, you invest 10% of $100 = $10 and wait for the oil prices to fluctuate. Now, let us assume that the Oil CFD prices increase to $130. This brings you a profit of a total $30 by only investing $10, which is three times the total money invested.
Benefits of Oil CFD trading
Leveraged trading
Trading with leverage means the trader can use borrowed funds from the broker to expand their market position. Traders only need to invest some percentage of the total trade value.
This means a trader can open a much larger position with less investment and enjoy significant profits on the total trade -- all with the help of leverage.
For instance, if the leverage is 500:1, the trader only needs $1, to open investments worth $500.
Low trading costs
Trading Oil CFDs mean you do not actually buy crude oil but only trade in it with the expectation to benefit from its fluctuating prices. Additionally, as you trade on margin, by depositing only a small portion/margin of your account’s balance, you do not risk heavy amounts of money at once. Hence, there are low trading costs involved when trading Oil CFDs.
Competitive spreads
Oil CFDs offer competitive and tight spreads that decrease investors’ default and downgrading risk. When spreads are tight, there is high volume and market liquidity leading to better profits.
Long and short trading
With Oil trading, a trader can benefit from both rising and falling markets. When the prices are constantly increasing, traders can place buy orders to profit from the uptrend. On the other hand, when the prices are constantly decreasing, the traders can short trade by borrowing the Oil CFD from the broker, selling them at a higher rate, and buying them back at a lower rate.
Types of Oil CFDs
1. Brent Crude
Almost two-thirds of all the crude contracts worldwide are based on the Brent Crude Benchmark. Brent means oil from the Forties, Brent, Oseberg, and Ekofisk, the four different North Sea fields. The overall costs for this Oil CFD are comparatively lower since Brent Crude is produced near the North Sea, leading to fewer transportation costs.
Crude produced in this region is sweet and light. It is used to produce gasoline, diesel, and other in-demand products. As it is used so widely, trading Brent Oil CFDs is a profitable bet.
2. West Texas Intermediate (WTI)
WTI is the oil extracted from the US wells in the states of Texas, Louisiana and North Dakota to name a few. Since this oil is transported through land, it is comparatively more expensive, making WTI Oil CFDs costlier as well.
WTI’s sulfur content is lower than that of Brent's. It is even lighter and sweeter than the Brent Crude, selling at a comparatively cheaper rate. The WTI is considered a major benchmark for all oils that are consumed in America.
Brent vs WTI oil prices
The Brent crude oil is generally more affected by economic, geographic, and political instabilities. As the raw material for this oil is widespread across different parts of the world, the price fluctuates more, and during a crisis, there is usually a surge. Since Brent is considered a better global price indicator, it is more expensive than WTI -- but it can be more profitable as well.
WTI is not as widespread as Brent, and so it does not get affected by international discrepancies as much. This is why WTI witnesses lower pricing throughout the year, and lower fluctuations too.
The ultimate steps to start trading Oil CFDs
1. Choose between Brent and WTI
After understanding what both benchmarks have to offer, make a choice between WTI and Brent to start trading Oil CFDs. Since Brent is an international benchmark and WTI is a US benchmark, you can decide which CFD you want to invest in after monitoring the global equations of the US and other countries.
2. Open a trading account
Once you have decided which Oil CFD you want to trade, open a trading account with a broker who offers CFD trading. Blueberry allows you to trade in both Brent and WTI Oil CFDs effectively.
3. Place a trade
Place CFD trades with defined stop-loss orders to manage risk in the market. You can use several long- and short-term strategies that align with your trading plan to place successful bets.
4. Stay updated with the news
It is necessary that you are aware of all the global news that can affect the oil market and its prices. This will help you predict future prices and market direction that will assist you in placing ideal entry and exit orders.
5. Monitor the trade and exit when required
Keep track of your positions and make exit decisions when the market is profitable.
Start trading Oil CFDs with leverage
Oil CFDs provide traders with access to the commodities market without actually having to own the commodity. Start trading Oil CFDs with Blueberry to enjoy competitive spreads, smaller margins, and transparent trade execution.
Sign up for a live trading account or try a risk-free demo account.
