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Crude oil has been a major commodity in the earth economic system for more a century and trading oil futures is one of the best means to speculate on the price of crude oil if y’all can’t trade contracts for difference (CFDs).
If you want to speculate on the price of oil but adopt to hold stocks, you tin either buy oil stocks or you can invest in oil ETFs, such equally the U.Due south. Oil Fund (USO). When you lot purchase rough oil stock, you tin track the commodity without investing direct in its perceived value. This is particularly interesting considering every oil refiner or distributor has a wildly dissimilar marketshare and range of services.
Buying oil stocks or shares of an energy or oil ETF will give y’all indirect exposure to the oil market, while trading oil futures more than closely
the underlying crude oil market place.
Trading oil futures besides requires skill and an efficient and receptive broker. Remember, how yous merchandise futures is just every bit important every bit where you trade, so make sure you pick the correct banker.
How to Buy Oil Futures:
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Pace 1:
Become Familiar with Oil Market Fundamentals -
Step 2:
Develop a Plan of Activity -
Stride three:
Option a Broker -
Step 4:
Open an Account and Become Live
- How to Buy Oil Futures:
- Overview: Buying Oil Futures
- How to Purchase Oil Futures
- All-time Futures Brokers
- Purchase Oil Futures
- Frequently Asked Questions
Overview: Ownership Oil Futures
The frequently-volatile oil market is not for everyone, so be enlightened that many factors affect the price of oil and most successful oil traders have washed exhaustive inquiry on rough oil fundamentals to understand how they move the oil market.
The about important key factors affecting the oil market involve production, reserves and world demand, although
geopolitical concerns
are also important since a large part of globe oil product comes from the Middle E. Also, decisions made by the Organization for Petroleum Exporting Countries (OPEC) accept a pregnant effect on product levels and, ultimately, on the price of oil.
The oil futures contract most commonly traded is the
CME Group’due south rough oil futures contract traded under the symbol CL. These contracts trade on the New York Mercantile Substitution and each contract represents 1,000 barrels of West Texas Intermediate (WTI) crude oil. Quotes for the contract are in U.Due south. dollars, with 0.01 per barrel the minimum price fluctuation, which is equal to $10 per contract.
CME Grouping futures contracts can exist settled by concrete commitment at the option of the seller of the futures contract.
Physical oil is delivered to a hub in Cushing, Oklahoma, although most oil contracts are settled through cash. Oil futures stop trading on the third twenty-four hour period before the 25th agenda twenty-four hours of the month prior to the contract month.
quotes folio. Source: CME Group.
In add-on to the CME Group’s oil contract for WTI, y’all can also trade futures on Brent crude oil. The futures for Brent oil merchandise on the Intercontinental Exchange (Ice) under the symbol B and they are as well for a contract amount of 1,000 barrels.
Both the NYMEX and ICE take electronic access, so
anyone who has a brokerage business relationship with a futures broker tin can trade in oil futures
using an electronic trading platform. Keep in mind that brokers have the correct to deny admission to futures trading to anyone they deem too inexperienced or otherwise unsuited for the risks involved.
Once y’all’ve been canonical to trade futures by your broker, you’ll need to post what is known as a
operation bail. This is an amount of cash equivalent to ii% to 5% of the futures contract value. The additional deposit is needed to ensure that you have the financial means to agree the futures position.
In order to trade oil futures, yous are required to provide the initial margin for the position, as well as the
maintenance margin
corporeality needed to keep the merchandise open. The amount of initial and maintenance margin varies depending on the corporeality of coin in your account and the market price of the futures contract. Brent oil futures generally price more to margin because of the higher price of the contract.
How to Buy Oil Futures
-
Get Familiar with Oil Market Fundamentals
Oil is ane of the globe’due south most important commodity, and its price has its own unique dynamic and valuation factors.
The commodity is besides bailiwick to numerous
geopolitical triggers, such equally unrest in oil-producing nations like Venezuela and tensions in the Middle East. Events that could cause the oil supply to subtract tend to push oil futures prices upwardly. Changes in global need for fuel and contest among earth producers can as well affect the price of oil.All of these known and expected
primal factors
are taken into account by the market to come to a consensus nearly the spot and futures oil prices you meet quoted every business solar day on futures exchanges.The difference between the main oil benchmarks is known every bit the
Brent-WTI spread. Brent rough originates in the North Sea off the declension of the United kingdom of great britain and northern ireland, and information technology contains less sulfur than WTI. In theory, WTI would seem to be the more expensive oil due to it being “sweeter,” or lower in sulfur content, although this is non the example in practice.Brent crude is more widely used and can more hands exist made into diesel than WTI, which is improve for gasoline production. Brent volition therefore by and large merchandise at a college price per barrel than WTI. The Brent-WTI spread has favored Brent consistently, and a narrowing or inversion of the spread has only been seen on very few occasions.
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Develop a Plan of Activeness
Later on y’all’ve researched oil fundamentals and monitored the oil market for some time, you lot tin can start to develop a trading programme. Ideally, yous would have money and risk management components in your trading program to limit your adventure and avert losing your entire deposit.
Trading without a programme of action is a recipe for failure. Call up, you are dealing with a rather volatile commodity futures marketplace so you need to take the right position size in relation to the amount of money in your account. You should also
enter stop-loss orders in the market if you cannot be watching it, just in instance you took a position based on a view that turns out to exist incorrect.While technical analysis methods are often used to determine entry and exit levels for commodities, the crude oil marketplace has considerable fundamental influences that could potentially move the price drastically when unanticipated changes occur. To develop a successful trading plan, all of these factors should exist taken into business relationship.
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Pick a Broker
After developing your strategy and incorporating information technology into a trading programme, you can so find a futures broker. When selecting a broker, you might want to endeavour out their platform and exam your trading program in a demo account first without risking any money.
Non all online brokers offer trading in futures. The all-time futures brokers will mostly crave a substantial initial deposit and so require that you prove you accept the knowledge and experience to trade in the futures marketplace. Nosotros’ve listed 3 highly respected oil futures brokers below.
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Open an Account and Go Live
Y’all should then be prepare to open upwardly a funded account and take your strategy to the ultimate test of trading it live subsequently yous’ve developed your trading program,
tested it in a demo account
and chosen a suitable broker.Remember that oil futures trade with considerable volatility, so make sure you’re prepared when the market starts to move. Make sure to go along a keen eye on international news and geopolitical events that might affect the price of oil. Central factors like a war, revolution or ballot in an oil-producing land could have a significant result on the oil market.
Best Futures Brokers
We’ve listed 3 highly respected oil futures brokers below. You can buy crude oil stock futures here, request assistance from the broker or take advantage of other investment options.
Merits Exclusive Offers
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Promotion
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Best For
High-volume Traders
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Best For
High Book Traders
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Best For
Low Deposit Requirement
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Best For
Trading Micro Futures
Buy Oil Futures
Futures trading requires a larger minimum deposit than trading in many other types of tradable assets. In add-on to the higher initial deposit and margin costs, trading futures requires that you become extremely familiar with the market you plan to trade.
The oil market place has enough volatility to make short term strategies worthwhile. Many online brokers like Interactive Brokers even offer a reduced margin requirement for twenty-four hour period traders. Yous can buy rough oil stock, arrive rapidly and get out simply as quickly.
Furthermore, if you have a sufficient business relationship balance to weather significant swings, then property a long- or medium-term position in the oil market could be very lucrative if your call on the market aligns with the underlying trend.
Want to acquire more about buying futures? Check out Benzinga’s guide for the all-time futures brokers, how to trade futures and how to merchandise bitcoin futures.
Often Asked Questions
Q: What is the best way to learn how to merchandise oil futures?
Knowledge is power, so the more you lot know well-nigh any marketplace you plan to merchandise, the more confidence y’all’ll accept when you are really trading.
Acquire as much as you can about oil companies and take a course on futures trading to learn more.
Q: Are oil futures a proficient investment?
Oil futures are one of the nigh oft traded derivatives on the market — in brusk, it’southward a great investment. You can thrive on oil futures’ high volume trades, leverage options and the fact that information technology’southward relatively like shooting fish in a barrel to get started.
Research and develop your trading strategy with Benzinga.
Source: https://www.benzinga.com/money/how-to-buy-oil-futures
