Trading oil CFDs

Crude oil is the most commonly traded raw material in the world. The oil markets can be particularly volatile, which is why some traders are attracted to this commodity. In times of geographical or economic instability, the price of oil often fluctuates between high and low prices, so it can be opportunistic for experienced traders.

Oil CFDs are one of the most popular methods of speculating on oil prices. Contracts for difference (CFDs) are derivative products that allow you to trade on the price movements of the underlying asset, without buying the crude oil outright at its spot price. With CFD trading, you agree to exchange the difference in value between the time that a position is opened and closed. Given the volatility of the oil market within recent years, this can lead to either profit or loss.

Crude oil CFDs require you to trade with leverage. In order to open a position, traders are only required to place a small fraction of the full trade value, otherwise known as a deposit. This gives you better exposure to the oil market and can magnify profits. However, this proposes a higher risk at the same time and can cause you to lose money when trading. We therefore advise our clients to create an effective risk management strategy when trading on CFD oil prices.

CFDs in the oil and gas industry

Oil trading falls within the energy category within the commodities market. The oil and gas industry produces international commodities such as Crude Oil Brent and Crude Oil WTI, as well as more local commodities including natural gas and heating oil for homes.

Crude oil prices can vary depending on their origin and current supply and demand, and oil trading prices fluctuate throughout periods of volatility. The two most commonly traded benchmarks of crude oil are Brent and West Texas Intermediate (WTI), both of which are available on our online trading platform. See here for our Brent crude oil price chart and WTI price chart.

There are several differences between WTI and Brent crude oil that are important to consider when choosing your commodity to trade. Brent is sourced from the North Sea and has more prevalence internationally, whereas WTI can only be sourced from oil fields inland of Texas and Louisiana, for example. WTI is seen as a lighter and sweeter alternative crude oil with a lower sulphur content. Given the fact that Brent is sourced close to the sea, this reduces transportation costs in comparison with WTI, which is sourced from land. This can affect the price of both WTI and Brent CFDs when it comes to buying and selling raw commodities.

WTI vs Brent oil prices

In recent years, Brent crude oil is usually more affected by political, economic and geographical pressures and instability. Because this raw material is more widespread for traders across the world, in times of crisis, its price tends to fluctuate and there is often a surge in Brent oil prices. As WTI is less widespread, it does not feel the effect of international events and therefore keeps a lower price throughout the year. These external factors are vital for your understanding of the oil markets and help to form part of your fundamental analysis.

Some traders enjoy the thrill of trading crude oil CFDs in such a volatile market. Leveraged trading, otherwise known as trading on margin, allows the trader full exposure to each financial asset. See here for our list of CFD margin rates for the commodities market. Our margin rates start at 10% for both Brent and WTI crude oil, or a leverage ratio of 10:1. However, trading with leverage in such volatile markets also brings the risk of significant loss of capital, as losses will be magnified.

How to trade oil CFDs

Choose whether you want to trade Brent or WTI, or both. Open an account and start depositing funds. Learn how to trade CFDs with our in-depth video tutorial.
As we have discussed trading with leverage, it is vitally important that you think about risk management strategies. If you cannot afford to take the high risk of losing your money, stop-loss orders are available to close the position once the trade reaches your maximum price.
Keep up to date with our news and analysis section. Our market analysts provide detailed breakdowns of the latest global news and can help to predict possible economic or political trends that may have an impact on the oil markets. This particularly applies to times when oil CFDs are particularly volatile to trade.
Think about your trading plan. There is an abundance of long-term and short-term strategies that can be used when trading oil CFDs.
If you are interested in trading not only our two benchmark crude oils, but a range of energy commodities including natural gas and heating oil, then you may be interested in our commodity baskets. Commodity index trading allows you to trade CFDs on multiple commodities in one trade while spreading the risk of leveraged trading. Learn more about our Energy Index.

Trading oil CFD futures

Contracts for difference can further be used to speculate on price movements in the oil market through a commodity futures contract. Futures trading is a contractual agreement between two parties to buy and sell an asset at a fixed price in the future. Whereas CFD trading is an over-the-counter product, futures are generally traded on a local exchange. Therefore, buying and selling oil futures is not specifically carried out through a CFD, although it gives the investor the chance to trade price movements of said future contracts.

Brent futures prices are generally higher than those of WTI, in line with their spot prices. This means that traders with knowledge in this field may find that their price movements are easier to predict. Read more about futures, also known as forward contracts, which are very similar products that we offer our clients.

Example of CFD oil trading

It is worth noting that the size of CFD trades are measured in ‘lots’, and in this case, one lot represents 100 barrels of crude oil.

Let’s use the example that Brent crude oil is priced at £50 per barrel; this means that one lot is worth £5000. In order to calculate your possible profits or losses, you need to assess the difference between the opening and closing price of the position.

If you think that the Brent oil price will increase, you could buy and go long. If you think that the Brent oil price will fall, you could sell and go short.

Let’s say that after opening your position, the subsequent oil price increases to £55 per barrel and you decide to close the position. The difference between the opening and closing price stands at £5. In order to assess your profit or loss, you then multiply the difference by the size of the trade (£5 x 100). This means that there is a total profit of £500 from this position.

Other methods of oil trading

We offer alternative methods to trading CFDs within the commodities market. A crude oil spread betting account works in a similar way but allows traders to trade tax-free* on the price movements of crude oil, without owning the underlying asset. Spread betting also requires you to trade on margin; therefore, the same precautions must be undertaken when opening a live account.

Another method for investing in oil with a share of asset ownership is through ETF trading. Exchange-traded funds work in a similar way to shares in the stock market, as the trader becomes a partial owner of the asset. This allows traders to invest in certain oil companies that have a promising stance within the stock market. As the share price of the oil company rises or falls, so does the ETF accordingly.

We also offer trading on oil stocks, including oil supermajors such as Chevron, BP, Royal Dutch Shell, Total and Eni.

*Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.

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