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How to Trade Oil: Most Popular Oil Trading Strategies

How to Trade Oil

Among the commodities most often traded in global markets, crude oil occupies a special niche. Moreover, it is possible to trade not only crude oil, but also any other products based on it (such as gasoline, diesel fuel, plastics, etc.), as well as oil futures, options, CFDs, ETFs, etc.

But what do we know about crude oil trading? What are the main principles of this kind of trade and what can our company offer to a trader interested in oil trading? Let's take it all in order.

Oil trading is carried out in several planes:

  • on the over-the-counter (OTC) market
  • on the exchange through futures
  • under long-term contracts directly between the oil producer and oil consumer.

In this article, we are more interested in oil trading precisely in exchange markets. In the era of the Internet, a trader does not have to buy and sell huge volumes of oil in order to trade them in the global markets.

Everything is much simpler and less risky thanks to the possibility to trade oil futures, CFDs, etc. One of our company’s innovations is the opportunity to trade continuous CFDs on oil futures, that is, without expiration dates. You can learn more about CFDs in the article "What is CFD Trading and How does it Work"

Why Trade Oil?

Today, a huge number of trading instruments are available for a trader, ranging from currency pairs to personal composite instruments (PCI), which a trader can create himself thanks to a unique platform developed by our company and well-received by users. Learn more about trading platforms.

Oil instruments today are one of the most popular and frequently traded in the world markets. So how did oil and its derivatives deserve such success? Here are several reasons:

  • When the world market is highly fluctuating, traders are more likely to consider commodities (ex. precious metals, oil, etc.) as a “safe haven” for their funds.
  • Oil is highly volatile. This allows traders who choose swing trading, day trading, scalping, etc. as their strategy, to receive high income from these price fluctuations.
  • In order to insure their funds against risks due to high volatility, oil producers and sellers apply hedging (i.e. to contract on the fixed-term market for the purchase or sale, in this case, of oil at a certain price in the future).
  • Trading oil futures included in your portfolio along with bonds/currency pairs/companies stocks will ensure risk diversification.

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How to Trade Oil: Oil Trading Strategies

Oil trading has its own characteristics. Our team has developed certain steps, following which you will increase your awareness in the field you are interested in, learn some "tips" and nuances of oil trading, determine your future trading strategy, and implement it in a more professional and thoughtful manner.

1. Use Our Experts’ Analysis

First of all, in order to start trading, you should explore the oil market, consider plenty of factors influencing pricing and the oil trend, be aware of important political and economic events, “read” indicators and be able to predict developments in the nearest future.

Since it is unlikely to do this alone and within a short period of time, our experts come to the rescue. They have received a brilliant education in economics and finance, have extensive experience in this field and have earned respect and high rating from the traders who use their daily recommendations and forecasts.

Technical Analysis, Market Overview from all angles, Fundamental Analysis, Market Sentiment, Video Reviews on various topics and other analytical materials that you can find on our website are designed to provide the necessary information in the most understandable and detailed format. In other words, to better understand the sentiments and trends of the oil market, we offer you analytical instruments and materials developed by our leading analysts.

2. Follow Oil Price Live Chart and Oil Price History Table

The second helpful tip is to use Oil Price Live Charts and Oil Price History Tables on our website in order to always stay up to date. On the chart page, you can track the current Brent and WTI quotes and the graphical expression of the oil market in real-time.

The charts show the trader the objective situation in the oil market more clearly and, together with the use of technical analysis, allow making more informed decisions for oil trading.

On the Oil Price Live Chart page, the trader can monitor current oil quotes at any time in order to avoid unpleasant “surprises”.

3. Set an Oil Trading Budget

Аn appropriate distribution of the trading budget is important for successful trading with minimal risks, along with the choice of instruments, strategies, proper data analysis and the forecast as close to reality as possible. For this purpose, there are specially developed concepts of Money Management and Risk Management. All this applies both to trade in general, and to oil trading in particular.

Experienced traders, through self-training, analysis of their deals and mistakes made, have well-established principles and trading styles, while beginners need support and recommendations at the very beginning. Our expert department has highlighted the following important principles from the concepts of Money and Risk Management:

  • Potential loss should be less than profit at least 2-3 times. Also, it is important to constantly control the entire trading process, therefore, do not shift the stop loss, being guided by the “greed”, which very often leads to disastrous consequences.
  • Determine the acceptable level of risk. The maximum risk of loss of funds should not exceed 5-6% of the trader's total balance. Moreover, each transaction should be no more than 2% of your deposit.
  • Choose an optimal leverage. The leverage in Forex may work not only in favor of a trader, but also against him or her. The choice of 1:100 is moderately risky, but at the same time makes it possible to significantly increase the deposit. However, if the volatility of prices of the traded instrument is high, then such a leverage would present a considerable risk of losses.
  • Trade a fixed percentage of your capital. If you follow this principle, your position will increase or decrease in accordance with the growth or reduction of your capital. So, profitability will grow along with the success of trading.
  • Use stop-loss and take-profit. Each transaction should be protected by setting stop-loss and a take-profit orders. Any unexpected news or event may reverse the trend, and you risk losing all the funds not managing to react on time.
  • Diversify risks. When distributing a portfolio among several instruments independent from each other, you compensate for the loss of some of the instruments with profit of the other ones. One of the best diversification tools is the innovative method of creating PCI (synthetic instruments) developed by our company.
  • Control your emotions. In case of any instability in the market, you should control your emotions, adhere to your strategy and not succumb to passion. It is a must to determine beforehand under which conditions the position will be closed when opening it.

4. Choose Your Own Oil Trading Strategy

Oil trading can be implemented by a variety of trading styles and strategies. Each of them has its own advantages and disadvantages, the choice depends more on the preferences of a trader, their capital and even temperament, the volatility of the traded instrument, the time the trader is ready to devote to trading and many other factors. Here are the most popular oil trading strategies:

  • Swing trading
  • Intraday trading
  • Scalping
  • Trading against the trend
  • Trend following

The list, of course, is not limited to these strategies, however, we tried to highlight the trading methods most commonly used and preferred by oil traders.

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5. Open a Trading Account

It's time to take the first step to start oil trading. We’ll figure out what a trader needs first. IFC Markets, as one of the leading brokerage companies in the Forex and CFD markets, offers its customers services under the most comfortable and best conditions.

The first thing to do to start trading oil is to open a trading account. Experienced traders can boldly open a Live trading account, and for beginners it’s better to work out their trading strategies and instruments on a risk-free Demo account.

Once the account is opened, we move on to the next stage - the selection of a trading platform. Our company offers 3 trading platforms: Metatrader 4, Metatrader 5 and NetTradeX. The “Compare Trading Platforms” page shows their characteristics, and you can easily determine for yourself the most preferable option. In order to provide our users with the necessary information for independent work on the NetTradeX trading and analytical platform and the MetaTrader 4, MetaTrader 5 platforms, we placed special guides on the use of trading platforms on our website.

6. Know When to Buy and Sell Oil

Choosing the right time to speculate on oil futures / oil options / CFD / ETF and so on is not an easy thing to do, and there are no universal recommendations on this subject, since the oil market is simultaneously affected by many factors. Also, the convenient time to start oil trading depends directly on your chosen strategy. The following principles are advisory in nature and can be quite useful in choosing the right time to start trading.

  • The “Sell High, Buy Low” principle (i.e. sell when prices are expected to decline, and buy when their growth is expected) applies to many commodity markets in general and to the oil market in particular.
  • Traders often resort to the method of using the correlation of dollar to oil prices. The price of an oil contract decreases with the strengthening of the dollar, and vice versa, when the dollar weakens, the price of oil in dollars rises.
  • It is also important to consider the seasonality of oil demand, natural disasters, market sentiment, the popularity of alternative energy sources, and regional differences in tariffs and logistics.
  • Keep in mind that the oil market is highly dependent on the OPEC + countries actions, as well as their decisions to limit / increase the oil production, etc., since the specifics of the oil market is precisely that it is more or less controlled by this particular cartel of oil-producing states.

7. Fix Your Profit

Fixing trading profit and loss or limiting risk at a certain level depends directly on your trading strategy. Stop Loss and Take Profit orders, installed in the trading terminal, are there to help you fix the desired profit and minimize possible losses. One of the advantages of the NetTradeX trading terminal is the server implementation of the Trailing Stop order (even when the user terminal is off).


Why Trade Oil?

Main reasons to trade oil, is price fluidity. Crude oil can be refined into a variety of forms such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied petroleum gas, jet fuel and fuel oils, which expand the market pool and increase demand. Trading can be done either by speculating on its market price, or exchanging the physical commodity.

How to Trade Oil?

Oil can be traded several ways:

  • Long-term contracts between oil producer and consumer
  • Through Futures
  • On OTC market

Each method has specific goal. To learn which method is the right one for you, follow the link see the article “How to Trade Oil”.

What are the Biggest oil Companies?

1. China Petroleum & Chemical Corp. (SNP) - Revenue (TTM): $355.8 billion

2. PetroChina Co. Ltd. (PTR) - Revenue (TTM): $320.0 billion

3. Saudi Arabian Oil Co. (Saudi Aramco) (Tadawul: 2222) - Revenue (TTM): $286.9 billion

4. Royal Dutch Shell PLC (RDS.A) - Revenue (TTM): $263.1 billion

5. BP PLC (BP) - Revenue (TTM): $230.7 billion

6. Exxon Mobil Corp. (XOM) - Revenue (TTM): $213.9 billion

7. Total SE (TOT) - Revenue (TTM): $146.1 billion

8. Chevron Corp. (CVX) - Revenue (TTM): $115.0 billion

9. Marathon Petroleum Corp. (MPC) - Revenue (TTM): $102.4 billion

10. PJSC Lukoil (LUKOY) - Revenue $99.1 billion

What is Brent Oil?

Brent crude oil is one of the most popular oil benchmarks in the world, it’s recovered from the North Sea. Brent makes such a good benchmark because it is easy to refine into products such as diesel, gasoline, petrol, and other end products, which are in a great and consistent demand.

What is WTI Oil?

West Texas Intermediate (WTI) is a light, sweet crude oil (petroleum with less than 0.5% sulfur is called sweet) considered one of the main global oil benchmarks, along with Brent oil. WTI is a blend of several oils drilled and processed in the United States, primarily serves as a benchmark for the US oil market.

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