In the domain of Forex trading, crude oil is widely acknowledged as one of the most frequently traded commodities on a global scale and, as an asset class, is highly susceptible to fluctuations in value. Two of the most commonly traded oil grades are West Texas Intermediate (WTI) and North Sea Brent, as their Sulphur content is less than 0.50%. While Brent crude is regarded as the global benchmark, WTI is predominantly traded within the United States. The primary objective of this discourse is to elucidate the intricacies of oil trading, including trading regulations, platform options, and recommendations for novices who are interested in commencing oil trading. The intended readership is comprised of both perplexed and highly proficient individuals, for whom a refined, sophisticated, and top-notch style of language would be entirely fitting.
What is oil trading, exactly?
When it comes to trading commodities like forex, stocks, and other asset classes, the underlying principles are similar to those of oil trading on specialized platforms. The use of online broker services represents a practical method for trading oil. Given the volatile nature of oil prices, which can be influenced by various factors such as geopolitical events, economic variables, and weather conditions, oil traders must monitor developments across the entire sector. As the preferred trading instrument for crude oil on oil trading platforms, Contracts for Difference (CFDs) offer traders exposure to price fluctuations without requiring them to hold the underlying asset.
Trading Crude Oil and Its Regulations
Trading oil on platforms follows regulatory rules akin to those that govern trading in other asset classes, such as equities and currencies. Traders must collaborate with a licensed broker while also conducting a careful assessment of the licensing body. The European Securities and Markets Authority (ESMA), the United States Securities and Exchange Commission (SEC), and the Investment Industry Regulatory Organization of Canada (IIROC) are just a few regulatory bodies with stringent and preventative legislation. Nonetheless, some of the most severe scams have been recorded in the United States and Cyprus. Regulators in the US and Canada, who operate under an outdated regulatory framework, prohibit trading in oil CFDs. As a result, traders have the option of trading futures, which represent binding oil supply contracts, or options, which possess an expiration date beyond which they lose value.
Given its liquidity, oil remains a popular trading asset on oil trading platforms, offering low spreads that are highly advantageous for scalpers and high-frequency traders. Over the past decade, OPEC has lost control of the oil market, with Russia and the United States exerting significant influence on price movements and occasionally going against the wishes of Saudi Arabia, the leading oil exporter and primary member of OPEC.
How to Choose an Oil Trading Platform
Sophisticated investors who seek to engage in the lucrative realm of oil trading must carefully select brokers and trading platforms that offer a highly competitive and secure trading environment. In order to maximize profits, discerning traders demand low commission rates, razor-thin spreads, generous leverage, and volume-based rebate programs as essential features of any oil trading platform. Additionally, these platforms must provide automated trading options and third-party upgrades in order to maintain a competitive edge.
Regrettably, many brokers offer only manual trading, failing to deliver the requisite technological infrastructure necessary for more sophisticated traders to thrive. However, a select few firms do provide internal oil trading systems, which may suffice for novice traders, but fall short of meeting the expectations of more seasoned traders. Among the premier oil trading platforms , cTrader and MT4 stand out as the most highly recommended. While MT4 is widely regarded as the best out-of-the-box option, cTrader is lauded for its customization features, which cater to the specific needs of individual traders.
In order to trade oil futures on these platforms, it is imperative to choose the top brokers, who will provide one or both of these premier platforms.
How to Get Started with Trading
The mastery of the intricacies of the marketplace is a paramount prerequisite for traders to engage in the effective trading of crude oil on oil trading platforms. In view of the intricate nature of the market, a comprehensive grasp of the fundamentals is indispensable as they exert a far more profound influence on price movements than technical analysis. The prime drivers of crude oil prices are the dynamics of supply and demand, the state of the global economy, and production data emanating from key producers such as OPEC, which accounts for roughly 40% of the world’s oil production, as well as top producers like the United States, Russia, and Saudi Arabia.
Oil Trading Account Types
It is imperative for traders seeking to trade volatile assets like oil to make a judicious selection of the account type in order to achieve optimal trading results. In view of this, mini and standard accounts are deemed suitable for portfolios with a value of less than or greater than $10,000, respectively, while micro accounts are targeted at novice traders with deposits of less than $1,000. In addition to these traditional account types, some brokers may offer exclusive benefits unrelated to trading for their VIP accounts. Notably, the minimum transaction size must be 0.01 lots, and it should be borne in mind that not all brokers provide multi-tier accounts.
Wrap-up
In terms of portfolio diversification, crude oil is the second-most-traded commodity after gold on the Forex market. Despite the prevalence of global benchmarks like the West Texas Intermediate and North Sea Brent, crude oil remains highly liquid and is frequently traded in US dollars. While some brokers may offer negative balance protection and leverage ratios of up to 1:100, it is vital to meticulously scrutinize the three primary trading costs of spreads, fees, and swap rates. Crude oil can be traded through futures and spot contracts, with the former reflecting obligations for future delivery and the latter for immediate settlement. Investors seeking exposure to crude oil may consider investing in upstream and downstream oil equities or ETFs, which are becoming increasingly popular and, when diversified appropriately, present lower risk.
