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Crude Oil Trading Explained

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                <p>A trader who would like to benefit from movements in
the price of crude oil can do it in a variety of ways.<br><br>The most
direct, though costly, way to trade in crude oil would be to buy your own
oil well but, fortunately, that is not necessary.<br><br>You can also
trade in crude oil through Exchange Traded Funds, Futures, CFDs, by
buying the shares of oil exploration companies, through royalty trusts
and by opening a spread betting account, to name but a few
options.<br><br>A futures contract is simply an agreement between a buyer
and a seller where the seller agrees to sell a certain quantity of a
product to the buyer at a future date at an agreed price. <br><br>You can
buy and sell crude oil futures contracts through a variety of brokers.
However, before you can make a trade, you usually have to deposit roughly
5% of the total value of oil you are trading in. This is called the
margin. You are still exposed for the total value of the trade but you
only have to pay a relatively small part of it up front.<br><br>That
means crude oil futures trading is a leveraged form of trading, which
holds both benefits and risks as we shall discuss later.<br><br>This
works in a very similar way to futures trading, although there are vital
differences.      <!--INFOLINKS_OFF-->

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<br>For example, the margin with an exchange traded fund could be 50%.
For a £10,000 trade you would therefore have to initially deposit
£5,000. ETFs are also not generally traded 24 hours a day, but during
normal stock market trading hours.<br><br>With <a rel="nofollow"
onclick="javascript:_gaq.push(['_trackPageview',
'/outgoing/article_exit_link/5233234']);" href="http://www.spread-
betting.org/">spread betting</a> you never actually buy physical crude
oil, you simply speculate on whether the price will go up or down. As a
result, trades are often completed in the order of a few
seconds.<br><br>In fact this also means that many spread betting
companies offer 24 hour trading, five days a week, on a wide range of
other financial markets from the same spread betting account.<br><br>With
<a rel="nofollow" onclick="javascript:_gaq.push(['_trackPageview',
'/outgoing/article_exit_link/5233234']);" href="http://www.online-spread-
betting.com/financial_spread_betting.php">financial spread betting</a>
you will also be required to put down a relatively small deposit, or
margin, before you can make a trade, although the margin level varies
depending on the market and the company. On some markets such as Brent
Crude Oil and US Crude Oil some spread betting firms will only ask for 1%
of your total exposure on a trade in advance.<br><br>Being able to profit
from the full price movement of an oil trade, whilst only paying a
relatively small margin up front, obviously has its
benefits.<br><br>However, that is also where the risk lies. If the trade
were to go against you then you may lose more than the amount you
initially deposited.<br><br>One way to reduce the risks when trading with
a highly leveraged form of investment, such as spread betting, is to make
use of a guaranteed stop loss. This way you can determine your maximum
loss before you start trading.<br><br>Spread betting is a leveraged form
of investment, it involves a high level of risk to your capital and can
result in losses that are greater than your initial deposit. Please
ensure that it matches your trading requirements as it may not be
suitable for all types of investor. Before you start trading, make sure
that you are fully aware of the risks. Only speculate with funds that you
can afford to lose. Where you feel it is necessary request independent
financial advice.</p>                <!--INFOLINKS_OFF-->
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posted:11/16/2011
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