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Oil witnesses massive price fluctuations due to its finite presence. This is why Oil trading has become immensely popular among traders. The market size for Oil is around $2.1 trillion as of 2021, and the number is expected to increase further.
Oil is one of the most traded commodities in the world, with the potential of receiving up to 18% returns every month. The global demand for Oil also makes it an ideal investment asset for portfolio diversification.
What is Oil trading?
Oil can be traded in the commodities market. Oil trading refers to the buying and selling of the different types and assets linked to Oil to gain profits through price fluctuations. Oil can also be traded using Contract for Differences (CFDs) and investing in companies that deal with the Oil industry. Trading Oil through CFDs is one of the common ways to trade “liquid gold” as it allows you to benefit from the asset’s price changes without actually owning barrels of it.
How to trade Oil through CFDs
1. Learn what moves Oil prices
The price of Oil highly depends on its supply and demand. When the supply is greater than the demand, Oil traders exit the market. When the demand is greater than the supply, Oil prices shoot up and leave traders with heavy profits. Pay close attention to the economic growth of countries that export and import Oil. When economies grow, their demand for energy also increases. This drives Oil prices to increase as well.
2. Understand the market sentiment
Since Oil is one of the most expensive commodities, the market is highly dominated by expert traders and hedgers. The market’s psychology plays an important role in deciding how you should trade Oil CFDs. You should also analyse how big institutions react to the volatile market and think about adopting their strategy to yours.
3. Choose which type of Oil to trade
There are two primary Oil markets: West Texas Intermediate (USOUSD) and Brent (UKOUSD). While WTI is traded more in the futures market, Brent is a better price indicator worldwide. WTI is sourced from Louisiana and Texas Oil fields. On the other hand, Brent is more common as it is sourced from the North Sea. This makes its transportation costs considerably smaller than WTI. Thus, affecting price fluctuations.
4. Analyse Oil trading charts and consider leverage trading
Analysing USOUSD and UKOUSD charts allows you to know how the markets’ prices have fluctuated over the past few years. This also gives you a sense of how each Oil asset reacts to different market and economic situations.
Once you’ve decided on which Oil market to enter, you can utilise leverage to maximise your trading position. Trading Oil using leverage allows you to benefit from fluctuating Oil prices without investing the entire amount of your position.
For example:
If one unit of Brent crude Oil is $80 and the CFD allows you to pay only 10% of the total cost, you need only $8 to open a position in UKOUSD. Suppose the price increases to $100 due to a sudden increase in global demand. You gain a profit of $20 by only investing $8 through leveraged CFDs. However, the opposite may happen if the market unexpectedly moves against your favour. Instead of a $20 profit, you may end up owing your broker some money.
5. Devise a trading strategy
One of the most common Oil trading strategies is the buy-and-hold strategy, which CFD traders do to make the most out of their trades. In this strategy, traders analyse the supply and demand of a certain asset, then open positions accordingly and hold onto them for a long time. Generally, in a buy-and-hold strategy, a trader holds open positions for six to eight months, then exits as soon as the prices are favourable enough.
Take advantage of Oil prices today
Oil trading can be extremely profitable since Crude Oil is a common necessity in the world. With Blueberry Markets, you can trade Oil through CFDs. Start trading today and take advantage of increasing Oil prices.
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