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What Is Oil Trading? How to start crude oil trading?

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Oil is the most heavily traded commodity on the market. It’s bought and sold by speculators, funds and investors, as well as oil producers and refiners who want to hedge their exposure.

What is oil trading?

Oil trading is the buying and selling of different types of oil and oil-linked assets with the aim of making a profit. As oil is a finite resource, its price can see massive fluctuations due to supply and demand changes. This volatility makes it extremely popular among traders.

You can use CFDs to trade on oil’s spot price, or the prices of oil futures or options contracts, without having to own any actual oil.

How do oil markets work?

Oil markets work using futures contracts, which enable investors, speculators and businesses to buy and sell barrels of oil for set prices on a set date in the future. Hundreds of millions of futures contracts are traded every day, for benchmark oils such as WTI and Brent, as well as lesser-known crudes.

At the end of the day, a settlement price of the benchmark oils would be announced, which would then be used to calculate the price of other oil contracts.

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Types of crude oil

The type of crude oil depends on the geographic location of the oil field and the characteristics of the oil itself. While there hundreds of types of crude oil traded on the global market, two primary types of crude oil serve as global benchmarks for oil prices: Brent and West Texas Intermediate.

1. Brent Crude Oil: Brent oil comes from 15 different oil fields in the North Sea. It is also characterised as a “light and sweet” oil, although it is not as “sweet” or “light” as WTI. Up to two-thirds of global oil contract trades are on Brent.

2. WTI Crude Oil: As the name suggests, WTI is sourced from US oil fields primarily in Texas, Louisiana and North Dakota. It is referred to as 'light sweet crude oil' due to its low density and low sulphur content. These characteristics make it less expensive to produce and easier to refine than 'heavy' or 'sour' oils. WTI is the main benchmark for oil consumed in the US.

How Can I Trade Oil?
Online brokers and exchanges offer several financial instruments that allow you to speculate on the price of oil:
1. Shares of oil companies
2. Contracts for difference (CFDs)
3. Exchange-traded funds (EFTs)
4. Futures
5. Options

The type of financial instrument you choose depends on the following factors:
1. Margin requirements
2. Leverage
3. Contract expiry dates
4. Management costs
5. Security costs
6. Physical delivery of assets

Oil Shares: Trading Oil Company Stocks
Shares are the least complex way to trade crude oil where you purchase equities in an oil company that you believe to become profitable at a future date.
There is usually a correlation between crude oil prices and oil company stock prices. But this is not always the case. And disasters as varied as pandemics and oil spills can make stocks plunge.


What are oil futures?

Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices.

How to trade crude oil futures

Crude oil futures are 1,000 barrels per contract, traded from 6:00 p.m. U.S. until 5:00 p.m. U.S. ET, all months of the year. However, you can trade more than just NYMEX crude oil futures online with Schwab. I also suggest Brent crude oil futures as well as E-mini crude oil futures, which are just 50% of the size of a standard futures contract. E-mini crude futures trade exclusively on the Chicago Mercantile Exchange's Globex® platform nearly 24 hours per day.

Day Trading Crude ETFs
Another way to day trade crude is through a fund that trades on a stock exchange, such as the United States Oil Fund (USO). Beginners may find this strategy more accessible since they can trade price movements in crude oil through the stock trading account they likely already have. The values of crude oil ETFs reflect daily percentage price changes.

You Need To Pick Your Trade Venue for start trade oil.

Pick a place for crude oil trading that offers liquidity. Commodity trading venues should be handpicked so that there is a substantial amount of trading in terms of trades executed. Sites that attract professional speculators may offer you better insights into price highs and lows and what influences the market for crude oil.

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Read Long-Run Charts for your oil trading.

Knowing about the highs and lows of crude oil market history can indicate reasons for price fluctuations/trends.

What is OPEC?
The Organization of Petroleum Exporting Countries (OPEC) is an organization that serves as a market modulator and unifier of oil trade policies. OPEC’s main role is to regulate oil supply and prices worldwide. OPEC currently consists of 13 countries.

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