As an individual, the best method available for trading in oil is through the use of an online trading platform that specialises in CFDs. You will find this service widely available among brokers that enable you, through the use of CFDs, to speculate on oil and other assets such as shares and stock market indices or other commodities such as gold.
The operation of CFDs could not be simpler and more convenient for the use of anyone that wishes to invest in the oil market without having any previous experience in trading. It simply requires that you take a position on the rise or the fall of the oil price at
a given moment and close your position when the foreseen profits are reached or when you wish to cut your losses.
Let us take a simple example:
The actual price of a barrel of WTI is 106 dollars and you foresee a rise in this price due to a decrease in the American oil stocks. You therefore subscribe to a CFD on the rise. If the price per barrel does rise you can place an order or manually close your position and you will make a profit equivalent to the difference between your subscription price and the closing price.
If, to the contrary, the price falls you will lose the
difference between the subscription price and the closing price, unless you have speculated on the price falling.
How to choose your trading platform:
As you will surely notice, the online trading platforms that offer the opportunity to speculate on the oil price are numerous. It is therefore necessary that you take the time to carefully compare them in order to choose the one that offers you the most advantages. You therefore need to verify certain important points such as:
The spreads practised.
The possible leverage effects.
The tools and indicators available.
The quality and simplicity of the platform
Oil: An asset with a future
The first thing we should confirm regarding oil is that this asset will always be popular for trading and always in demand. In fact, oil is still the most used fossil fuel throughout the world and plays a primary role as a commodity in the fabrication of numerous industrial products.
Due to the development of numerous countries that have consumed little oil up to now, the demand has therefore risen enormously, but also because of the exhaustible nature of this energy, it seems logical that the supply will lessen in the future whereas the demand will continue to grow. Although this statement is slightly mitigated due to the development of renewable forms of energy, the latter are still far from being able to take the stage alongside oil as a major energy source and therefore oil still looks to have many good years ahead as an investment.
Investing in oil over the long term is therefore considered as a secure placement.
Profit from the fall in the price to invest in oil over the long term:
You have no doubt noticed that, since 2014, the oil prices have fallen greatly. After approaching $100 per barrel they finally lost nearly 50% of their value. But, as with all financial markets, the oil market is governed by cycles alternating between rising and falling trends.
Therefore, the analysts predict a new rising trend shortly that may enable investors to achieve substantial profits. It is therefore judicious to closely monitor the emergence of this new trend to
take position over the long term, or take position now using a short term cover.
How to cover a long term investment in oil?
As we have just seen, the oil sector analysts expect a new rise in the price per barrel of oil in the coming months or years. It may therefore be beneficial to invest in oil over the long term. But, while waiting for this trend to begin, the price per barrel may still experience a further fall.
To cover any eventual losses during this period, you may opt for a strategy that aims to take short parallel positions to sell with a strong leverage effect of which the profits enable you to keep your long position open until the rising objective is reached.
The indicators to take into account for oil trading:
To trade in oil online using CFDs it is strongly recommended to use data from both technical and fundamental analysis.
Your technical analysis can be completed using comprehensive customised charts that are available through your broker on the trading platform upon which you can display different indicators.
Concerning fundamental analysis, this consists of monitoring and analysing the factors and exterior events that may influence the oil price. These of course include data on the supply and demand of oil throughout the world as well as other indicators.
For example, the American oil stocks are carefully monitored by traders. You will find them each week in the economic calendar as they are published every Wednesday. These stocks give you concrete information on the demand and consumer levels of oil. Large stocks have a tendency to lower the price of oil and vice versa.
Finally, the U.S. Dollar rate can also influence the oil price as an advantageous exchange rate can encourage buyers to invest in the commodity which is quoted in this currency.
