Trading in Oil
Oil trading is the buying and selling of different types of oil and oil-linked assets with the aim of making a profit. As oil is a finite resource, its price can see massive fluctuations due to supply and demand changes. This volatility makes it extremely popular among traders.
You can use CFDs to trade on oil’s spot price, or the prices of oil futures or options contracts, without having to own any actual oil.
There are three ways you can trade oil:
1. What is the oil spot price?
Oil spot prices represent the cost of buying or selling oil immediately, or ‘on the spot’ – instead of at a set date in the future. While futures prices reflect how much the markets believe oil will be worth when the future expires, spot prices show how much it is worth right now.
2. What are oil futures?
Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices
3. What are oil options?
An oil option is similar to a futures contract but there’s no obligation to trade if you don’t want to. They give you the right to buy or sell an amount of oil at a set price on a set expiry date, but you wouldn’t be obliged to exercise your option. There are two types of options: calls and puts. If you thought the market price of oil was going to rise, you might buy a call option. If you thought it was going to fall, you’d buy a put. You can also sell call and put options, if you wanted to take the opposing positions. Selling options can generate income in quiet markets, as you receive their value at the outside of your trade. But be careful – this is your maximum profit, and you could lose far more if the market goes against you.
Learn what moves the price of oil
The price of oil is primarily moved by the relationship between supply and demand. When there is a demand for oil that outstrips its supply, the price of oil will rise. But if demand falls and supply floods the market, the price of oil will fall. There are a huge number of factors that can impact oil supply and demand, we’ve taken a look at four of the most common below.