Oil CFDs are one of the most popular methods of speculating on oil prices. Contracts for difference are derivative products that allow you to trade on the price movements of the underlying asset, without buying the crude oil outright at its spot price. With CFD trading, you agree to exchange the difference in value between the time that a position is opened and closed. Given the volatility of the oil market within recent years, this can lead to either profit or loss. At XTB, Oil CFDs are based on futures contracts listed on the exchanges, which expire each month.
These are standardized instruments for WTI and Brent; the standard contract is for 1,000 barrels of oil, so a $1 movement in price is equal to $1,000 in contract value. If the price ticks down to $58.25, you would lose the same amount of money, $2,250, which is 24% more than you originally traded. There is an abundance of long-term and short-term strategies that can be used when trading oil CFDs. The value of shares and ETFs bought through a share dealing account can fall as well as rise, which could mean getting back less than you originally put in. Plus500SG Pte Ltd holds a capital markets services license from the Monetary Authority of Singapore for dealing in capital markets products (License No. CMS100648).
The world is actively seeking to move away from overdependence on fossil fuels as a primary source of energy. Cars, in particular, are becoming more and more fuel efficient, while electric cars are also picking up in terms of popularity. If this trend continues aggressively, oil prices will be pressured lower due to decreased demand. In addition to CFDs, there are also several ETFs that allow investors to gain exposure to the oil market.
Get tight spreads, no hidden fees and access to 12,000 instruments. Calculate your hypothetical P&L if you had opened a CFD trade on a certain date and closed on a different date . We provide multilingual customer support available for your every need. Please consider the information in light of your objectives, financial situation and needs.
Stay up-to-date with the latest market news and watch the US crude oil spot price live at Capital.com. Check for upcoming economic events that have an effect on oil prices, such as the US weekly petroleum status report and OPEC meetings. Forex and CFDs are leveraged products and can result in losses that exceed your deposits.
Other options for investing in Oil with XTB
With regard to the price of US crude oil, the commodity has witnessed a lot of volatility throughout its history, hitting some dramatic peaks and bottoms. AvaTrade has numerous handy resources that can help investors get the most out of their trading activities. For instance, you will get access to Trading Central, AvaSocial and Guardian Angel add-ons to maximise your trading potential.
This time the price of oil fell, and when you reviewed your trade you decided that the reasons that you entered it in the first place were wrong, and it was necessary to exit and cut your losses. The below charts show you the Brent and WTI crude oil spot prices, both live and historical. To find out more, visit our guide on Brent and WTI crude oil prices. There are several differences between WTI and Brent crude oil that are important to consider when choosing your commodity to trade. Brent is sourced from the North Sea and has more prevalence internationally, whereas WTI can only be sourced from oil fields inland of Texas and Louisiana, for example.
A Must-ReadeBook for Traders
In the case of the oil market, it is extremely important to track the publication of important reports that may increase market volatility. Oil CFDs, which are available at XTB, provide additional opportunities to spot new interesting investment opportunities both when the price of this commodity increases, as well as when it falls. The situation on the financial markets will be linked to the oil market for a long time.
As you did not hold the position overnight, there is no interest charge, so your net profit is $1125. This is the example of leverage that you can enjoy when trading CFDs. The return on your capital invested is over 95% when the price of crude oil increased only 3%. In general, the US crude oil rate significantly relies on the wider performance of the US economy. In addition, as with any other traded commodity, its value depends on the basic laws of supply and demand. For example, when supplies are tight, you can expect the price of oil to rise.
As with all derivatives, oil CFDs give you a substantial amount of leverage on your money, which means profits can be substantial, although losses can also mount up quickly. Many CFD brokers provide the facility to speculate on the price of oil futures contracts but contract sizes are typically much smaller than standard futures contracts. Contracts for difference can further be used to speculate on price movements in the oil market through a commodity futures contract. Futures trading is a contractual agreement between two parties to buy and sell an asset at a fixed price in the future. Whereas CFD trading is an over-the-counter product, futures are generally traded on a local exchange. Therefore, buying and selling oil futures is not specifically carried out through a CFD, although it gives the investor the chance to trade price movements of said future contracts.
Trade Oil with CFDs
This may be news about major oil companies, oil-producing regions as well as OPEC meetings. Because oil prices fluctuate wildly, a solid technical trading strategy should be in place to help pick out optimal trade entry points as well as price targets. Using technical analysis also helps identify key price levels that may offer good risk/reward opportunities. Oil is denominated in the US dollar in the international markets. Consequently, when the USD strengthens, oil prices tend to go down; and when the USD weakens, oil prices will usually trend higher. A truly globalised, 24-hour market, oil is highly sensitive and prices are constantly moving – making it an ideal instrument for day traders looking for fast movements.
Brent futures prices are generally higher than those of WTI, in line with their spot prices. This means that traders with knowledge in this field may find that their price movements are easier to predict. Read more about futures, also known as forward contracts, which are very similar products that we offer our clients.
Let’s say that after opening your position, the subsequent oil price increases to £55 per barrel and you decide to close the position. The difference between the opening and closing price stands at £5. In order to assess your profit or loss, you then multiply the difference by the size of the trade (£5 x 100). This means that there is a total profit of £500 from this position. Crude oil is the most commonly traded raw material in the world.
Trading oil CFD futures
This means that it is especially important that you use leverage responsibly and that you have appropriate stop loss orders in place when trading oil CFDs. A good rule of thumb is to trade, say, one CFD per $1,000 held on deposit in which case you would stand to make $1,000 on a $10 movement in the crude oil price. Speculations and trading sentimentTrading oil through futures contracts is considered a common form of trading.
Any number of approaches can be used, from breakout strategies in consolidating, sideways markets to trend following approaches when there is a clear direction to the market. Brent crude oil — comes from 15 oil fields located in the North Sea. The low sulfur content, which is below 0.37%, indicates that it is sweet oil, and its low density allows it to be described as light, ideally suited for the production of diesel oil and gasoline.
Crude oil is one of the most demanded commodities and prices have significantly increased in recent times. Two major benchmarks for pricing crude oil are the United States’ WTI and United Kingdom’s Brent. The differences between WTI and Brent include not only price but oil type as well, with WTI producing crude oil with a different density and sulfur content. The demand for crude oil is dependent on global economic conditions as well as market speculation. Although there have been discussions of replacing the USD with another trade currency for crude oil, no definitive actions have been taken. The most simple way to gain exposure to the energy market is through a CFD on the underlying commodity, such as crude oil, heating oil or gas oil.
Note also that within futures markets there are several expiration months quoted – for instance at the time of writing , September and December CFDs are available. The difference in prices between the various contracts is a reflection of the the cost of carry and other seasonal factors as it would for all commodities. In recent years, Brent crude oil is usually more affected by political, economic and geographical pressures and instability. Because this raw material is more widespread for traders across the world, in times of crisis, its price tends to fluctuate and there is often a surge in Brent oil prices. As WTI is less widespread, it does not feel the effect of international events and therefore keeps a lower price throughout the year.