Trading crude oil provides excellent opportunities for profit, given its importance and unique position within the global economy. The energy sector has experienced sharp fluctuations over the years, resulting in the presence of strong trends capable of producing great results for both short-term swing trades and long-term holding and hedging strategies.
However, some traders cannot make the most of the fluctuations in crude oil prices, due to their lack of knowledge of all the characteristics of these markets. Many of these traders do not understand the hidden traps that could consume their profits. So, what is the best way to invest in oil prices?
Trading oil requires more consideration and study compared to other assets, as there are many oil products you can choose from and when trading the oil market. For example, you can trade a particular oil derivative, shares of oil and natural gas companies as well as oil and natural gas futures. Each of these options has a number of advantages and challenges.
Trading oil CFDs is one of the options that many people interested in trading this sector prefer to use, due to their simple characteristics. "Contracts for difference" (CFDs) are basically contracts between a trader and a broker to replace the difference in value between the time the deal is opened and the time it is closed.
Standard ratios of financial effectiveness vary, but simple margins are more widespread. Most CFD brokers provide the possibility to speculate on the price of oil futures contracts, but the value of the contracts is usually less than the standard values of futures contracts, as the contract for the difference on oil can be worth 25 barrels (depending on the company’s conditions), equivalent to a thousand barrels for standard futures contracts.
CFD trades are usually commission-free (the broker profits from the spread), and since this type of trading does not include actual ownership of the assets, you do not incur any storage or borrowing costs. The most important characteristic of the oil market is that it is a global market that is open 24 hours a day, and has multiple fluctuations in prices, which makes it an ideal environment for day traders who can profit from rapid price movements. The market also enjoys high liquidity, which allows easy entry and exit from transactions of any size.
High-risk investment warning: Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Any opinions, news, research, analysis, prices or other information contained in this presentation is provided as general market commentary and does not constitute investment advice.
Editors’ Picks
EUR/USD extends slide toward 1.1800 on renewed USD strength
EUR/USD extends its daily slide and trades at a fresh weekly low below 1.1850 in the second half of the day on Tuesday. Renewed US Dollar strength, combined with a softer risk tone keep the pair undermined alongside downbeat German ZEW sentiment readings for February.
GBP/USD falls below 1.3550, pressured by weak UK jobs report
GBP/USD remains under heavy bearish pressure and falls toward 1.3500 on Tuesday. The UK employment data highlighted worsening labor market conditions, bolstering bets for a BoE interest rate cut next month and making it difficult for Pound Sterling to stay resilient against its peers.
USD/JPY is looking for direction around 153.00 with key US data in focus
USD/JPY reversal from 153.70 has been contained above 152.70 on Tuesday. Major currencies are trading within narrow ranges amid thin trading volumes. Investors await the release of the US GDP and PCE Inflation figures to make decisions.
Editors’ Picks
EUR/USD extends slide toward 1.1800 on renewed USD strength
EUR/USD extends its daily slide and trades at a fresh weekly low below 1.1850 in the second half of the day on Tuesday. Renewed US Dollar strength, combined with a softer risk tone keep the pair undermined alongside downbeat German ZEW sentiment readings for February.
GBP/USD falls below 1.3550, pressured by weak UK jobs report
GBP/USD remains under heavy bearish pressure and falls toward 1.3500 on Tuesday. The UK employment data highlighted worsening labor market conditions, bolstering bets for a BoE interest rate cut next month and making it difficult for Pound Sterling to stay resilient against its peers.
Gold recovers modestly, stays deep in red below $4,950
Gold (XAU/USD) stages a rebound but remains deep in negative territory below $4,950 after touching its weakest level in over a week near $4,850 earlier in the day. Renewed US Dollar strength makes it difficult for XAU/USD to gather recovery momentum despite the risk-averse market atmosphere.
Crypto Today: Bitcoin, Ethereum, XRP upside looks limited amid deteriorating retail demand
The cryptocurrency market extends weakness with major coins including Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) trading in sideways price action at the time of writing on Tuesday.
UK jobs market weakens, bolstering rate cut hopes
In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months.
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