Trade CFD the market offers for oil Forex , which many traders forget, because the foreign exchange market is still associated mainly with currency pairs. Commodity trading is usually considered in the stock market, where larger investments are required to open a position. CFD or a contract for difference allows you to buy not an asset, but a contract for the underlying instrument. You can trade CFDs for Difference using Abi.
Oil is one of the most famous and frequently mentioned energy carriers that everyone has heard of. Many factors have an impact on an asset. Among other commodities, contracts for which a trader can trade, oil occupies a special position due to the high volatility... In turn, oil also has a great impact on the economies of the whole world and individual countries, in particular those involved in the extraction and supply of raw materials.
The fact that you can actively trade and earn on contracts for many goods or raw materials (in addition to oil contracts, brokers offer work with CFD on indices, stocks of the USA or Europe), which are also traded on Forex many people forget. This is bad because CFD give more opportunities for trading due to the lack of requirements for a high initial deposit. In this article I will talk about the features of a financial instrument. CFD for oil and how best to trade it.
Differences in the grade of oil WTI и BRENT
The most popular brands of raw materials are WTI и BRENT... There are other species that are found not only on Forex tradingbut also on popular stock exchanges.
Oil brands BRENT (BRENT). It is considered the benchmark for quality among other types of black gold. Deposits and the main mining area - the North Sea. The main consumers of the resource are Asia and European countries. The brand is rightfully considered the most popular - the bulk of transactions in oil futures contracts open at BRENT.
Oil WTI. It is mined in one of the largest states of the United States - southern Texas, in the western part of the state near Mexico. Considered the main competitor of the brand Brent.
Despite the differences, the charts of both types of oil are very similar and correlated.
The main difference between brands on stock exchanges is that futures for oil BRENT considered non-deliverable... By brand WTI deliveries are made and the volume of trading in futures contracts is about 4% of the total volume of delivery contracts.
What determines and affects the price of an asset?
Changes in the quotes of any asset are influenced by specific factors or events. Some events are general, that is, they will affect all financial instruments, while others put increased pressure on oil. I will briefly describe the main factors affecting oil quotes that should be taken into account when opening deals.
Supply and demand ratio. Oil price formation by 80-85% depends on supply and demand according to research INEI RAS. The main law of economics is that where there is demand, the price of the requested product will rise. Therefore, trade the asset for which there will always be demand. Oil one of these assets is exhaustible resource and it is needed for many types of industries. In recent years, when due to difficult economic circumstances (pandemic) the demand for many goods and services falls, quotations cfd for oil WTI are also under pressure. When the market situation begins to improve, prices will also go up.
OPEC meetings and decisions on production volumes. The main task of the meeting of the OPEC countries is to maintain oil prices and control production volumes so that they do not exceed the established limits. Oversupply reduces the demand and price for quotes.
Change in the number of drilling rigs. Installation statistics are generated by the company Baker Hughes... The information is important not on the total number of installations, but on the dynamics of changes in the total number. So, if the number of drilling rigs grows, then the mood in the market is bullish and the price of oil grows. Over time, however, this backfires, with an increase in installations and production volumes leading to a drop in prices.
Crude oil reserves statistics. Two American organizations publish oil data - EIA (Energy Information Administration) by the volume of processing of raw materials and stocks and API (American Petroleum Institute) shows the volumes by stock. Information is released every Wednesday at 16.30 and 18.30, respectively (winter time). If stocks increase, then quotations fall and vice versa.
Geopolitics. Any political or military conflicts between countries affect oil or the dollar. In particular, if one of the countries involved in the conflict is a country engaged in the extraction of raw materials. The threat of a decrease in oil production leads to an increase in quotations. The same effect is caused by sanctions against countries that supply raw materials. For example, after the imposition of sanctions against Iran in 2018, quotations of all grades of oil jumped sharply in one day: BRENT increased by $ 3.
Oil trading instruments
Oil trading can be carried out using several financial instruments that require varying degrees of preparation, trading experience and the size of the deposit. For myself, I have highlighted the following options:
- Futures... One of the most popular and widespread instruments for trading oil, it is used by experienced traders or investors with large capital. Available on stock exchanges where commodities are traded. Requires trading experience as futures - it is a derivative asset, the base is raw material. It does not propose the purchase of an asset, but a contract for the supply of the underlying asset in the future.
- Options. This is the same as futures a derivative offering to buy a contact not for the underlying asset, but for futures... Has a higher volatility.
- Binary options. Here, trading is conducted in the simplest format. It is necessary to guess the direction of movement of the chart after a specified period of time and fix the value of the contract.
- CFD (abbreviated definition from contract of difference - in the lane. with eng... means Contracts for Difference). The best option for trading volatile instrument - unlike binary options, a trader can get all the profit, which is fixed from the moment of entering the market and the growth of quotations. In addition, all Forex-Brokers offer leveraged trading (usually 1:10).
- Shares of companies engaged in oil production, production of petroleum products. I think that everything is clear here - oil prices are growing, and share prices are also growing. Plus, you can receive dividends.
Distinctive features of trading CDF for oil
In order to trade successfully CFD for oil BRENT, I will note the important features of working with a trading instrument. Due to the increased volatility and the specifics of contracts, there are some facts that I want to highlight as a guide:
- because of the high volatility and dependence on many factors (news. geopolitics and OPEC meetings) on the chart are often formed Gapsto consider when opening a position and setting a limiting loss Stop loss;
On the 15-minute chart, we see two GEPA, which confirms the high Volatility asset
- since the price CFD for oil WTI is expressed in US dollars, in the charts of the US dollar and oil quotes, there is a negative correlation (inverse relationship): if the price of one asset rises, the other falls. That is, when the dollar strengthens, the oil price goes down and vice versa. This can be used in a trading strategy, for example, on the eve of meetings Fedwhen the issue of the key rate is being resolved.
- seasonal factor. Here I want to highlight the fact that the demand for commodities is subject to seasonality. Oil is needed to generate energy, which is in demand during cold periods, so during the winter months, in particular, in January and February, oil prices can rise.
- low threshold for entering the market: if to buy stocks or futures you need a deposit of $ 70- $ 100, for trading CFD for oil, it is enough to have 5-10 US dollars to try to work with the asset.
Thus, for competent trading, I consider it correct to use a combination of fundamental and technical analysis. As with any other instrument with a high volatility and dependence on external economic background. At work CFD for oil brands BRENT it is important to regularly follow the news regarding stock levels.
From technical analysis tools, simple indicators are suitable: moving averages or MACD... The former help to determine the moment of the beginning of the reversal of the current trend - when the oil price chart is higher than the moving one, it can be considered as a buy signal. Provided that the line MACD will also show a signal for growth.
on the chart, we see that a buy signal appears after the intersection of the simple moving average with the exponential. On the chart MACD a buy signal appears earlier - after crossing the signal lines
To sell, we need to wait for the oil price chart to be below the moving average and see confirmation of the signal on the lines MACD.
On this chart, a sell signal also appears after the oil chart falls below the moving average lines, an additional signal is the crossing of the signal lines MACD.
Conclusion. CFD oil is a great alternative futures and other oil trading instruments
CFDs are a great way to start trading oil without having the large initial deposit required to trade options or Futures... Open an account with Forex- a broker is easy and simple - in just a few minutes, registration, account replenishment and asset purchase are completed. For working with other tools that we reviewed earlier - Futures or options, you need more money to start and open an account with a broker that opens access to classic stock markets.
Despite the ease of starting trading CFD for oil, let me remind you that the tool is sufficient volatile and requires theoretical training for trading and an understanding of the general market sentiment.