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5 Tips To Guarantee You Profit From Oil Trading

Posted by : Premraj | Posted on : Friday, March 1, 2019


Do you know that you can trade in oil just like you trade in other financial instruments such as stocks? Oil offers an excellent opportunity since it has a unique standing in the global political and economic systems meaning that you can profit in nearly every market condition. The recent volatility in the energy sector guarantees that you can profit immensely from short-term trades as well as in the long-term from a well-researched strategy.

To trade oil, you need to learn 5 basic tips.

1. Understand how oil moves

Crude oil, just like many other commodities in the market, is moved by supply and demand perceptions. Shrinking demand and increased supply encourage crude oil sales by traders to lower ground. On the contrary, high demand and decreased supply encourage bidding of oil by traders to higher ground.

2. Understand oil traders

Most hedgers and professional traders dominate the futures market while other industry players take positions to safeguard against hedge funds exposure. Investors and retail traders are less influential in futures markets compared to other markets such as precious metal markets that tend to be more emotional.

Investors and retailers become more influential when there is sharp trending in crude oil markets as a result of the oil industry making headlines and attracting capital from small players. You need to keep abreast with news to help identify where momentum is shifting – between greed and fear.

3. Understand the types of oil

There are two primary markets where crude oil is traded. They are the Permian Basin’s Western Intermediate market and the North Atlantic’s Brent market. The crudes traded in these markets have differing levels of sulphur and API gravity. WTI trades mostly in the lighter crude oil commonly referred to as sweet.

4. Think long-term

Since the trading in oil started, there have been observable long-term trends that are important indicators of how the oil markets behave. The Brent market has come into prominence in the 2010s due to increased production in the US and shrinking production of oil in the North Atlantic. Improved technologies in fracking and shale have been central to this increase. The trading range of oil stays relatively constant for a long period of time ensuring that your investment can be easily recouped with consistent profits if you trade for the long-term.

5. Decide where to trade

Some of the venues to trade crude oil include the NYMEX, the US Oil Fund and the iPath S&P Goldman Sachs Crude Oil Trust ETN. These options offer different benefits in liquidity, size of contracts, daily trade volumes, and profits. Each of these venues has its own level of risk. You should consider making your trades using reserve currencies since many countries have their economies closely leveraged to their sources of energy. Trading using a cross of the US dollar and Mexican and Columbian pesos allows you an easily scaled and highly liquid access to downtrends and uptrends.

You need exceptional skills to trade in energy and crude oil markets to guarantee consistent profits. These five steps should present you with the basic knowledge to help you decide on whether you choose to trade oil.

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