How to invest in crude oil?
25 Oct 2018
For an active trader, the volatility of the crude oil markets offers many opportunities for profit. The crude oil prices are also affected by perceived shortages and excess supply. Weather conditions can also have a direct impact on prices. In addition, the price of crude oil is often considered as one of the main benchmarks of the health of the global economy, with a strong relationship between economic growth and crude oil demand. However, crude oil is generally considered a relatively safe bet even when the stock market in general is not working well. After all people still have to use crude oil regardless of the economy, so there will always be a healthy demand to remain even though it is not so much a hedge like gold.
In a truly globalized 24-hour market, crude oil is highly sensitive and prices are constantly moving, which makes it an ideal instrument for itinerant traders looking for quick movements. One of the easiest ways to negotiate crude oil prices is through the use of difference contracts (CFD).
It can be said that crude oil is one of the most essential products for modern day-to-day life, since it is used in many different markets, products and services, and as a result, its demand is constantly solid. Contracts for difference are traded in a range of commodities as an alternative to direct investment, and one of the most popular bases for the CFD trading is crude oil. World crude oil trade is big business in most forms of investment: from crude oil futures to the spread of bets on crude oil prices, investors go crazy for crude oil and rightly so.
In addition to the strong demand is the fact that the supply of crude oil is limited, both naturally and artificially, by crude oil-producing nations and governments to ensure that those in need of crude oil can obtain it and avoid unnecessary storage. As a result, crude oil trading can be particularly volatile, especially given the geopolitical circumstances of many crude oil-producing nations, which allows investors to access a large number of profit opportunities in the crude oil markets.
Why Operate Crude Oil CFD's?
Buying crude oil as a commodity is essential for many end users, such as fuel companies and plastic manufacturers, but it is also a base commonly marketed by commodity and derivative traders. Contracts for differences in crude oil are no less popular, and in fact, for several key reasons, they can represent a more profitable, more profitable way of investing in crude oil markets.
Contracts for difference are products with margin, therefore, they allow traders to engage with the crude oil markets to a greater extent than their trading capital would allow. Therefore, instead of buying one or two barrels of crude oil directly, traders can buy contracts for difference in batches of 100 barrels at a time, up to a value many times more than their available investment capital. With margin requirements often around the 5% mark, this means as much as 20 times, simply by trading the same position in the crude oil through CFDs.
Another good reason for investing into crude oil through CFD is that it is one of the most practical ways to take a short term position in the crude oil market, and in any case it is a flexible investment product that can be applied in a series of different scenarios. . With entry barriers lower than direct investment in the market, and no contract end date (as in the case of futures), CFDs are flexible enough to trade as a short term highly leveraged profitable transaction and ideal as a long-term profitable position depending on market prospects.
How to Invest in Crude Oil?
Before starting to buy and sell CFD on crude oil, it is very important that we first mention the basic concepts of trading. Look at the direction to which the price is mainly moving. If the price has been going down for a year, it is unlikely to increase tremendously overnight. Act like a sheep in this case, follow the herd and earn money. The first thing you should do is determine the general direction to which the price will go.
Do not let a position remain open endlessly. Limit your losses and maximize profits. You can do this by closing a position at a logical moment. This could be a good round number where you have lost an X percent. In this way, you make sure that you do not lose all your money in a single transaction. When buying crude oil, it is important to limit your losses as much as possible.
Since the civil war in the crude oil producing nations and the change of government policy in relation to transporters, to the rapid increases in production and the growing demand of growing economies, the demand and supply of crude oil are constantly changing, and as a result there are a lot of factors that influence crude oil prices.
Crude oil prices are among the most vulnerable in response to external factors compared to other commodities.
Factors That Influence the Crude Oil Price
You will get a greater profit if you buy crude oil at the right time. Let's look at the factors that most influence the price of crude oil.
The demand is what determines the price of any action. This is also the case of crude oil and, therefore, of the price of crude oil. When the world economy is not doing so well, the demand for crude oil falls. This is caused by a drop in the overall production and therefore, the use of crude oil. It is also important that you observe the economic situation of the big economies.
The OPEC, or the Organization of the Petroleum Exporting Countries, has multiple members that export crude oil together. The connected countries form a cartel that determines the price of crude oil and the amount of crude oil that will be exported. The OPEC statements regarding production have a direct influence on the real price of crude oil.
When you want to buy crude oil, the US dollar plays a very important role. This is due to the fact that the price of crude oil is expressed in US dollars.
The conflicts in the crude oil countries raise the price. For example, if there is a war in a large crude oil producing country, this could raise the price because crude oil production may be affected.
Crude Oil Supply
The new crude oil supplies can also cause a drop in the price. Crude oil is a scarce resource. When crude oil supplies are decreasing, the price can go up tremendously. When we suddenly find a new supply of crude oil, this can cause the price to go down, since there is more supply than previously estimated.
Speculation on Crude Oil Price
Finally, speculation plays a very important role in the crude oil price. The speculation market has grown enormously and traders now affect the price of crude oil. Therefore, the price of crude oil is not based solely on supply and demand or the actual use of crude oil. It is also influenced by the general feelings that traders have about crude oil.
Is It Lucrative to Trade Crude Oil?
Is it possible to make money investing in crude oil? Yes! By buying and selling crude oil at the right time, you can earn a lot of money in a short time.
If you want to trade crude oil CFD's, it is best to do so through a reliable and regulated broker. Libertex is a professional broker where you can earn money regardless of whether the market is going up or down. You can start completely free on Libertex using our demo account and when you are ready you can make your first deposit, you can go live.