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Oil Commodity Trading
GUIDE | TRADING BASICS | BEGINNER
Oil commodity trading: How to trade oil
Learn the basics of oil trading, including what impacts oil prices, popular strategies and the different ways you can trade it.
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Oil Commodity Trading: How To Trade Oil
Crude oil is one of the most actively traded commodities in the world. Used to power vehicles, generate electricity and manufacture everyday products, oil is a central cog in the global economy and consistently in high demand.
This has earned it the nickname of “black gold”. Read on to find out all you need to know about oil trading, including what currency it’s traded in, different trading strategies, and how to trade oil with FXTM.
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What is oil trading?
Why is oil trading popular?
Ways to trade oil
What impacts the price of oil?
Popular oil trading strategies
How to trade oil with FXTM
What is oil trading?
Put simply, oil trading is the buying and selling of oil with the aim of making a profit. If you had the resources (and storage facilities), you could do this by buying the physical commodity. But the most common way to trade oil is to speculate on its price using derivatives.
A derivative is a financial contract between two parties that ‘derives’ its value from the price of an underlying asset, like oil. When you trade a derivative, you can profit from changes in oil’s price, without having to take ownership of actual barrels of oil.
Hundreds of different types of crude oil are traded on global markets, but only two serve as worldwide benchmarks for oil prices: Brent and West Texas Intermediate (WTI).
Brent Oil
This comes from oil fields in the North Sea. Up to two-thirds of global oil trades are on Brent. On the FXTM platform, you’ll see it listed as UK Brent oil.
WTI Crude Oil
As the name suggests, this comes from US oil fields, primarily in Texas, Louisiana and North Dakota. WTI is the main benchmark for oil consumed in the US. On the FXTM platform, you’ll see it listed as US Crude oil.
Ways to trade oil
There are three main ways to trade oil: the oil spot price, oil futures or oil options.
With FXTM, you can use CFDs to speculate on oil spot prices, without having to own any barrels of oil yourself. If you think the price of oil will rise, you can ‘buy’ an oil CFD. This is known as ‘going long’.
However, if you think the price of oil will fall, you can also ‘sell’ an oil CFD. This is known as going short. Trading CFDs enables you to profit from drops in oil prices, rather than just rises.
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