The ABCs of Oil Trading

Posted in Market Research by on November 30, 2016

In order to successfully trade oil there are a few basics that you need to master first and knowing the key words and phrases is one of them. Some of the phrases oil traders need to know are the same across all investing and trading while there are quite a few that are specific to crude oil trading. Once an investor is comfortable with the jargon it becomes easier to navigate online oil trading platforms and gives traders confidence in their investment choices. The following information can help get you up to speed for making your next investment.

Oil Trading Terms to Know

An entire book could be created to explain the various words and phrases that can help investors get into the online oil trading realm, but a few of the ABCs below are a great place to start:

Arbitrage — The profit investors can and do gain from buying and selling the same investment for different prices

Brent — A “light” and “sweet” oil that is used as a widely accepted benchmark for pricing crude oils across the globe

Crude Oil — Naturally occurring, unrefined petroleum

Equity — Stock ownership, typically of publicly traded firms in this case

Foreign Exchange — The Forex is a highly liquid market where foreign currencies are traded on a global scale

OPEC — This acronym stands for “Organization of Petroleum Exporting Countries” and it consists of 12 countries from across the globe

Spot Price — A price for a commodity, like oil, or financial instrument for immediate delivery

West Texas Intermediate – Another “sweet” and “light” oil benchmark, similar to Brent but for the U.S. market

There are hundreds of terms that an oil trader might come across in the online Forex trading market, but the above words are the building blocks for understanding more complex terms with regard to trading strategies and markets.

Why These Terms Are Important

Once investors gain a general understanding of these key phrases it is helpful to know how that understanding can be leveraged in real world trading situations. Here are just a few examples of how these key terms will be useful in online oil trading:

Brent and WTI – Brent is a highly used price benchmark for oil futures on the Intercontinental Exchange (ICE) in Europe while WTI is used in the New York Mercantile Exchange (NYMEX). They are both used to determine futures pricing for light, sweet crude oils. So, if an investor wants to buy and sell this type of oil future, whether for physical delivery or cash settlement, understanding the Brent and WTI oil prices is vital.

Crude Oil – Investors should understand how much is being produced, where it is being produced, the technology that is used to find and extract it and what global demand is for it directly and indirectly through intermediate markets.

Equity – Oil investors will often include direct stock ownership of companies engaged in oil exploration, extraction, refining or transporting.

Forex – The Foreign Exchange market allows investors to tap into crude oil futures without having to deal with delivery of the actual oil product. By using this type of online trading platform, oil traders can gain valuable exposure to the oil market while avoiding physical commitments.

OPEC – By understanding the agreements and actions taken by OPEC, investors can anticipate changes in oil production and price.

Putting this knowledge into action is where the real work begins. By gaining a foundation of knowledge, investors can build on it and expand to new areas of expertise. This will make connections between different market factors for even better investing choices going forward.

Using Your Knowledge to Start Trading Oil Online

Trading oil isn’t as complex as it used to be. With online resources on current events and minute to minute updates on the market it’s easier than ever to start investing. With some basics in hand an investor can begin to tap into the Forex and futures market and start building an investing strategy to fit his or her financial goals.

How to Trade $10,000 of Oil with a Few Hundred Dollars

With an online forex trading platform you have the ability to trade with leverage of up to 100:1 buying power. That means that you could control an oil trading position of 1000 barrels of crude oil with only a couple hundred dollars. The price of energy changes daily, and you can take advantage of these market price fluctuations. With a live account your capital is at risk. Start today by opening a practice demo account.

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