Crude Oil trading provides probable trade opportunities which are highly profitable. It is all due to the volatility of the oil market value, and it's a highly needed commodity, so it will always keep its position as a necessity even in the future.
These factors mentioned will result in its strong market price changes, which will give oil investors stable profits. So for as long as you played the correct short term trades and applied long term trade strategies, you will be ensured of good profit in oil trading.
Beginner investors in oil traders often miss out on the opportunity of making the most out of oil market changes. They should rely on easy-to-use software on trading platforms such as Oil Profit. This situation could be a result of unawareness of the difficulties to be expected when doing oil trades which can result in loss of profit. It could also be the cause of a lack of knowledge and analysis of the oil trade markets and their constant changes due to their supply and demand.
This article will provide you with the five steps you need to keep in mind in order to make the most out of your oil trades.
1. Study what makes the crude oil prices move
The law of supply and demand is what makes the crude oil market prices go up and down. High supply and low demand mean lower oil market prices, while high demand and low supply will make the oil price skyrocket. High demand and low supply are what mostly happens in the crude oil market. This is because oil is a life necessity, and it is needed in every person's everyday life. Thus the demand for oil never ceases.
In July 2008, crude oil hit an all-time high of $153.73 per barrel. This is due to economic growth and high industrial production, which makes the demand for crude oil's price peak at the market. But it is not all an upward trend, and because crude oil prices can vary reacting to the overall high supply and lower demand due to economic restrictions, which can cause a huge crash in the crude oil prices, take $19 per barrel of crude oil in March 2020 which mainly happened due to COVID-19 pandemic as an example. Though the prices of crude oil are slowly recovering, it has taken a recent upward trend of $77 per barrel.
The point is knowing the constant changes in the crude oil prices in the market will prepare you to know what to expect and to play it right when the prices are high, and know your temporary exit when the price is low. Know that crude oil prices will go back up because there can't be no demand for it all since it is a life necessity.
2. Understand the trading system and factors that affect it
Professional traders take over the “oil futures market” (an agreement made by speculating the probable price of the oil in the future and setting up a particular amount and date to buy and sell oil through a Contract For Difference) since retail traders do not play a huge part in oil futures trading. Retailer influence hugely relies on the time when crude oil is on a huge upward trend where it will most often than not attract small-time trades who are drawn to the market due to the hype brought about by the news. The emotional state of traders and people, like greed and fear combined, will surely affect the price of oil in the market, which can either be a reason for sparking high oil prices or crashing low prices.
3. Choose between Brent and WTI crude oil
There are two primary markets where oil trades happen: it's either West Texas Crude Oil (WTI) or Brent Crude. They are of different origins WTI originates from the U.S. while Brent is from the Atlantic. Different origins mean different sulfur content and API gravity. These two are both in constant competition as leaders of the crude oil pack.
Brent has become the constant indicator of overall crude oil pricing in the global market, WTI though it is much heavily traded in 2017. But due to the changing environmental conditions and technological differences, U.S. oil supply through shale and fracking technology heavily increased the WTI supply while Brent drilling went on a rapid decrease. Thus, this results in WTI becoming the indicator for setting up the crude oil prices in the market.
4. Read the long term oil price chart
Reading the oil price chart's history could give you further background on what makes the oil prices move, what happens when it suddenly hits up in price and what goes on when it hits its low. This could give you a better foreground when speculating about your oil futures trades, and it doesn't hurt to know what can possibly happen to your investments.
The market value of WTI rose to $20 right after World War II and thus began a consecutive rise in its value, even hitting $120 in 1970. The next powerful trend in crude oil happened in 1999, which continued with the littlest downtrend. It rose up to crude oil's all-time high of $153.73 in July 2008. A powerful downtrend, though, happened recently due to the COVID-19
Pandemic dropped to an estimate of $20, but it is currently recovering its value to this day, hitting an oil future of $77 by 2022.
5. Pick your crude oil investment venue
- NYMEX WTI Light Sweet Crude Oil offers high liquidity, which trades with over 10 million CRDs per month. However, high return equates to high risk since the 1,000 barrel unit contract with .01 price movement, which is a bare minimum.
- The U.S. Oil Fund has been really popular with traders and investors who want to play with the oil investments the most. This is because it has a daily volume average of 20 million shares out for CFDs. This is pretty risky too for it is highly likely that the spot price (current price) is lower than its oil futures (speculated market price in the future) due to this the discrepancy that traders and investors suffer are big enough especially to CRFs which are longer-dated.
If you want different trends and opportunities, oil companies and sectors along with their oil trade platforms can offer them to you. Further, it can provide you with diverse industry exposure with its production, exploration and oil services. Thus the potential and opportunity does not end though you must keep in mind how risky it is without understanding and figuring out how the oil trade industry works. Thus the need for a trusted oil trade platform is highly needed, so take this into consideration when deciding to go through with oil trade investment.
In any investment, skills and effort are what keeps the profit coming. It is the same with crude oil trades; you would need to look at and study what moves the oil futures and the price history through the long-term charts, learn what moves the crowd, and the physical variations that could also affect the market price of crude oil.
All in all, with a skill set and a planned strategy, you can have a better profit in oil trades than any other digital trades.