Crude oil is ranked among the most liquid commodities in the world, meaning high volumes and clear charts for oil trading. Oil traders should understand how supply and demand affects the price of oil. Both fundamental and technical analysis is useful for oil trading and allows traders to gain an edge over the market. Traders should follow a crude oil trading strategy for greater consistency and efficiency. Why Trade Crude Oil? Crude oil is the world economy's primary energy source, making it a very popular commodity to trade. A naturally occurring fossil fuel, it can be refined into various products like gasoline (petrol), diesel, lubricants, wax and other petrochemicals. It is highly demanded, traded in volume, and extremely liquid. Oil trading therefore involves tight spreads, clear chart patterns, and high volatility. Brent crude is the world's benchmark for oil with almost two thirds of oil contracts traded being Brent oil. WTI is America's benchmark oil, it is a slightly sweeter and lighter oil compared to Brent.
WTI trades on CME Globex: Sunday - Friday, 6:00 p. m. - 5:00 p. (with an hour break from 5:00 p. to 6:00 p. m each day) while Brent trades on ICE: Sunday - Friday - 7:00 p. Crude Oil Trading Basics: Understanding What Affects Price Movements When trading oil, the two major focal points is supply and demand. Whether there was an economic report like a news event or press release or tensions in the Middle East, the two factors that will be taken into consideration is how supply and demand is affected, because this will affect the price. Supply Factors Outages or maintenance in key refineries around the globe, whether it's the Forties pipeline in the North Sea or the Port Arthur refinery in Texas, must be monitored because of the effect it can have on the supply of oil. War in the Middle East leads to concerns about supply. For example, when the Libyan Civil war began in 2011, prices had seen a 25% rise from in the space of a couple of months. OPEC (Organization of the Petroleum Exporting Countries) production cuts or extensions lead to changes in the price of oil.
The Covid-19-induced global market selloff has caused crude oil prices to plunge. Domestic stock exchanges having commodity segments offer crude futures for trading. ET explains the basics of crude oil derivatives trading for entities wanting to hedge and those wanting to take contra bets to commercial users. 1. What are crude futures? These are contracts that allow you to purchase or sell a set quantity of crude at a pre-set price for delivery on a future date. In the Indian context, no delivery takes place. Contracts are cash-settled. 2. How does a trade play out? Assume you're bullish on crude. One contract (100 barrels) at Monday intraday prices costs Rs 3, 26, 300. If you put up 5 per cent margin to buy, you pay Rs 16, 315 – 20 times leverage. A counterparty sells you crude at Rs 3, 263/ bbl. If crude rises by Rs 50, you make Rs 5, 000 per contract. The seller loses that much. If the price falls by Rs 50, you lose and and your counterparty gains. It's a zero-sum game with money moving from one pocket to another.
Like every other futures contract, oil futures contract or crude oil futures is a legal agreement that binds two parties to either buy or sell oil at a predetermined amount, at a stipulated time in the future. Crude oil is one of the most crucial commodities in the world today. From making cars run and planes fly, so many other heavy machines depend on one form of oil or the other, to run. Crude oil is a major source of energy in the world, in spite of the growing interest in renewable energy. It is one of the most actively traded commodities in the world today. It is also able to affect the prices of other commodities including natural gas and gasoline. By extension, crude oil prices can also have an impact on the prices of stocks, stocks, and currencies. Trading Oil Futures Crude oil is not only one of the most actively traded commodity in the world, but it is also one of the better commodities to trade on a futures contract. The oil futures market is one of the most active markets in the world as many traders follow up closely.
Your trading platform will calculate your profits and losses for you, but it's a good idea to understand how your trading platform arrives at those figures. Crude Oil Futures Contract (CL) For the standard crude oil contract, the tick value is $10. That's because each contract represents 1, 000 barrels of oil, and the tick for each barrel is measured in increments of $0. 01. If you have a position on one contract, a one-tick movement will result in a profit or loss of $10. If the price moves 10 ticks, you gain or lose $100. If it moves 10 ticks and you're trading three contracts, your profit or loss is $300. E-Mini Crude Oil Futures Contract (QM) Using the same formula, the tick value for an E-mini crude oil contract is $12. 50 ($0. 025 per tick per barrel and 500 barrels per contract). That means for each contract, a one-tick movement will result in a profit or loss of $12. 50. If it moves 10 ticks, you gain or lose $125. If it moves 10 ticks and you are holding three contracts, your profit or loss is $375.
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