Trading crude oil provides excellent opportunities for profit, given its importance and unique position within the global economy. The energy sector has experienced sharp fluctuations over the years, resulting in the presence of strong trends capable of producing great results for both short-term swing trades and long-term holding and hedging strategies.
However, some traders cannot make the most of the fluctuations in crude oil prices, due to their lack of knowledge of all the characteristics of these markets. Many of these traders do not understand the hidden traps that could consume their profits. So, what is the best way to invest in oil prices?
Trading oil requires more consideration and study compared to other assets, as there are many oil products you can choose from and when trading the oil market. For example, you can trade a particular oil derivative, shares of oil and natural gas companies as well as oil and natural gas futures. Each of these options has a number of advantages and challenges.
Trading oil CFDs is one of the options that many people interested in trading this sector prefer to use, due to their simple characteristics. “Contracts for difference” (CFDs) are basically contracts between a trader and a broker to replace the difference in value between the time the deal is opened and the time it is closed.
Standard ratios of financial effectiveness vary, but simple margins are more widespread. Most CFD brokers provide the possibility to speculate on the price of oil futures contracts, but the value of the contracts is usually less than the standard values of futures contracts, as the contract for the difference on oil can be worth 25 barrels (depending on the company’s conditions), equivalent to a thousand barrels for standard futures contracts.
CFD trades are usually commission-free (the broker profits from the spread), and since this type of trading does not include actual ownership of the assets, you do not incur any storage or borrowing costs. The most important characteristic of the oil market is that it is a global market that is open 24 hours a day, and has multiple fluctuations in prices, which makes it an ideal environment for day traders who can profit from rapid price movements. The market also enjoys high liquidity, which allows easy entry and exit from transactions of any size.
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