Digitalization is gradually taking over the economy. Many businesses are changing their mode of operation using cyberspace technology. One of the most common businesses in cyberspace is online trading. It has become the most stable source of income for many entrepreneurs globally.
Crude Oil is a hugely popular commodity among traders. With supply and demand constantly in flux, volatility and news are never far away and liquidity is rarely hard to find. This business is not commonly known by many especially in Nigeria, despite the fact that oil remains the most common commodity across the globe.
Luckily, you don’t need to handle any amounts of crude or own an importation license in order to trade the oil markets. This is because most oil and gas trading is handled via futures. So instead of buying oil, storing it, waiting for its price to increase and then selling it on and arranging for it to be delivered, you can buy a futures contract and then sell the contract before it expires. In doing so, you’re taking advantage of the same increase in price without the same logistical effort.
How the oil market works
How profitable is it?
How to get started
Oil futures are contracts in which you agree to exchange a set amount of oil at a set price on a set date. They are traded on futures exchanges, and are the most commonly used method of buying and selling oil.
While oil importers and exporters use futures to insure against the adverse effects of oil price volatility, online oil traders can use them to speculate on oil without buying or selling the commodity itself. That’s because the prices of oil futures will move as the value of oil goes up or down.
Oil futures are traded on exchanges, just like shares. But unlike shares, they are traded in the form of oil benchmarks. Oil doesn’t come out of the ground in the same form all around the world, and oil benchmarks enable traders to quickly identify the quality and drilling location of the oil they are buying and selling.
The two most popular oil benchmarks are Brent Crude and West Texas Intermediate (WTI), traded on the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX). You can trade both of these benchmarks with CCI Traders, alongside various other oil and gas benchmarks: including Heating Oil, Natural Gas and No Lead Gasoline.
For a standard crude oil contract (CL) the price value is $10. This is because the contract represents 1,000 barrels of oil, and 1,000 barrels multiplied by the $0.01 will results to $10. That means for each contract, a one price movement will result in a profit of $10. If it moves from $70 per barrel to $71 per barrels in a day (which is 100 cent movement 0.01), you gain $2000. If you’re holding 3 contracts, your profit is $6000. This is how profitable oil market is.
There are two main ways of speculating on oil price movement: futures and options, CFD trading, or investing via equities and ETFs.
To trade futures and options, you’ll need to use the right exchange for the oil benchmark you wish to trade. Most exchanges have criteria for who is allowed trade on them, so the majority of futures speculation is undertaken by professionals instead of individuals. If you want to trade options, you’ll need an options broker.
CFDs enable online traders to trade on the changing prices of futures and options, but without buying and selling the contracts themselves. And instead of trading on a commodities exchange, you create an account with a leveraged provider. This brings several benefits for oil traders:
Access to online trading is done through Commodities Brokers. Brokers provide for you trading account and trading platform. Day trading crude oil is done on a short term price movement, physical crude oil is not taken in possession of and trading results (Profit or loses) reflect in your trading account, profit made in trading are paid in cash into your Bank account.
@ccitraders Twitter @cci_traders
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