Oil Trading System

The oil trading system basically refers to the mechanism where in people from around the world can buy and sell oil futures contracts at the comfort o...


The oil trading system basically refers to the mechanism where in people from around the world can buy and sell oil futures contracts at the comfort of their own homes through the internet. Before the age of the internet, only huge corporations and rich people have the ability to engage in such kinds of trades. The internet has indeed caused the further liquefaction of financial capital all over the world by allowing people to trade at virtually any place and at any time. To make this possible, the oil trading system occurs through foreign exchange markets so that transactions with various currencies can easily be facilitated.

What makes the oil trading system attractive to many people is the high volatility that is involved with it. Sure, there are many risks that comes with high volatility as the prices of oil can fluctuate suddenly due to various factors. However, the potential rewards of the oil trading system are also high as well so you can earn huge profits off it. In addition, oil is still a very important commodity today as the majority of the world is still dependent on it for energy. Therefore you are assured that there is always going to be a movement of these underlying assets that are the basis of the trades.

The oil trading system today allows people without much financial to participate in the buying and selling of oil contracts. Oil trading is done through forex brokers which provides the traders with the trading software as well as the analysis of the market. Brokers offer different leverage rates, which refers to the capacity to purchase a valuable amount of commodity with a relatively little amount of financial capital. To put it simply, a high leverage in oil trading increases the potential gain from your investment, but if you lose in the trade, you also lose a lot.

The oil trading system basically uses the concept of directional trading: when oil prices are projected to increase, then the oil trader is expected to buy oil contracts so that he/she can sell it back in the market once the prices start to fall.

Oil Trading Companies


In order to trade oil, you will need an oil trading company that buys and sells oil contracts for you in exchange for a commission. They are commonly known as brokerage firms or brokers for short. They are very important in oil trading as an individual cannot participate in one without them. That is because the actual oil trading involves huge amounts of money that most person does not have. This way, oil trading companies makes oil trading more accessible to an average person.

Oil trading companies also make it easier for people to trade oil. They can be easily accessed through the internet so that people who are interested in trading oil can create an account online, at the comfort of their own homes. Most oil trading companies also offer free demo accounts so that novice oil traders can practice first and know what it is like to be in a trading environment without risking any of their money. Another thing that oil trading companies provide is the trading software that you will use for the transactions. While most oil trading companies have their own trading software, more and more brokerage firms are starting to use the widely popular MetaTrader 4 platform. Also, some use a web-based trading platform.

There are certain things that you need to take into consideration when choosing an oil trading company because they are quite crucial to the potential outcomes of your trades. One of these things is the leverage ratio that the oil trading companies offer. Leverage refers to the capacity to control a large amount and very expensive commodity with a relatively little amount of capital. An oil trading company that offers a high leverage ratio will allow you to make huge gains but when you lose, you also lose a lot. Some companies offer 1:50 leverage ratios and it can even reach up to 1:200.

The other things that you have to consider in an oil trading company is their minimum account size, minimum transaction size, their funding methods, their trading hours, their client support services, their banking support, their language support and the spreads. These are all important they can help you ensure that those oil trading companies are suitable for your situation and will cater to your needs.

Oil Trading Business


Becoming a professional in the oil trading business requires a lot of experience and patience in order to be successful. The oil trading business is a zero-sum game and therefore losing on trades is a common and inevitable experience. It is however can be very profitable due to the high volatility of oil that is affected by a lot of factors. Therefore if you can stomach losing some money in hopes of gaining a lot more, then you are up for a nice reward if you become successful in this field.

They say that the oil trading business, like any instruments in the financial market, can be compared to gambling as you are only pushing your luck in hopes of gaining a profit. This is not exactly the case. While it is true that risking a certain amount of money is necessary in oil trading business, this field requires traders to have a special kind of analytical skills that will allow them to see the direction where the prices are going. In a sense, this puts the oil traders in the driver’s seat since it gives them the capacity when to make the right calls or transactions.

Of course there are certain external factors that causes the prices of oil to become unstable. It is therefore important for the people in the oil trading business to stay informed and connected with the markets as much as possible so that they can take the necessary actions whenever it is required. In addition, not all information out there in the market is reliable so it is the job of the trader to choose which ones are the most reliable and this is where experience comes in.

Finally, as mentioned earlier, it is also inevitable for people in the oil trading business to lose in some of the trades. Even experienced and veteran traders can make a series of wrong decisions within just a day. Most people react to this by trying to win back their losses, only to lose more money in the process. Therefore it is very important to have always have a clear rational mind and not let your emotions get the best of you in oil trading business as it will surely cause your demise.

Oil Trader


So you think you got what it takes to be an oil trader? The requirements for oil trading isn’t that much. All you need is at least $1,000 worth of financial capital, a broker, and a computer with an internet connection. You do however need to possess some important qualities like discipline and resiliency if you want to be successful in this kind of endeavor.

The first thing that you need to do to if you want to become an oil trader is to find a broker so you can commence on trading oil. This is the main thing that you need to do as you need to be involved with a broker in order to “participate in the action”. Some examples of popular brokers in oil trading today are ForexYard Broker, Easy-Forex Broker, and AvaFX Broker. The good thing is that you can access them and that you can create an account through the internet so you don’t have to go to the NYMEX to actually trade.

Each brokers have their own set of rules regarding the minimum deposit that you can make, with some you can deposit as low as $100 while others require at least $1,000. They also have different rules on the minimum number of virtual barrel of contracts that you can purchase, the margin required per barrel, the and the spread.

Another good thing to look for when choosing a broker is the leverage that they offer. It refers to the ability to control a large amount of commodity with a relatively small amount of capital. This can be a double-edged sword as it describes the volatility of the trade since a high leverage can either lead to large gains or large losses. Oil traders usually get a minimal leverage of 1:40 but sometimes it can go up to 1:200.

If you are a novice oil trader and is still hesitant to risk investing your money, most brokers offer a free demo account that you can practice on before actually entering the real deal. Once you are already a fully pledged oil trader, what you need to do is constantly look out for signs in the market in order to make good decisions like when to buy or sell oil barrels. Another tip when trading oil is to never risk more than 2% of your trading account on a single trade so that you won’t thrash your account of some bad trades which could normally happen in oil trading.

Oil Options Trading


Oil options trading refers to the right, but not the responsibility, to buy or sell a thousand barrels of crude oil at a certain agreed price, called the strike price within the option expiry date (which is different from the contract expiry date). This makes oil options trading as a derivative contract since no actual exchange of goods is actually involved in this trade but it is however based from a real underlying asset.

Oil options trading is a great way to be involved in oil trading especially if you do not have the huge amount of funds required to participate in trading oil futures contracts. With oil options trading you can trade with a smaller trading account while knowing the value of the risk before the trade.

Basically there are two kinds of options: the call option which gives the buyer the right but not the responsibility to buy the underlying asset at the strike price, and the put option which gives the buyer the right but not the responsibility to sell the underlying asset at the strike price. The person who is the option buyer needs to pay a premium to the option seller in order to obtain this right. Once the buyer exercises this right to buy or sell the underlying asset, the seller of the oil options is compelled to do so at the established price. In addition, the buyer of the options contract may choose not to do anything and let it expire within the option expiry date.

Oil options trading uses the concept of directional trading in order to gain profits off these transactions. What the potential buyer of the option does is that he/she watches the movement of the prices in the market to look for an indicator on when to purchase a call or a put. If that person believes that the price of oil is increasing then he/she will buy a call option so that he/she can sell it to the market again once the price drops; on the other hand if that person thinks that the trend of oil prices is going down then he/she will buy a put option.

Oil Futures Trading


Oil futures trading refer to the process of trading oil contracts in a futures market with the aim of earning profits along the way. In this sense, those who are involved in futures oil trading is not really concerned with the actual oil that is the basis of the trade, but they utilize the movements of capital and fluctuations in the market to gain something out of it. Oil futures trading is a good market to trade nowadays because the reality is that the world is still primarily oil-dependent and it will not likely to change for sometime. This means that oil is still going to stay a liquid asset that you can trade at any time of the day.

The futures trading system was utilized a long time ago when sellers of commodities like farmers pledge a certain amount of goods to a dealer that will be delivered at a fixed future date. However, when the seller encounters a certain kind of problem in producing the required amount of goods before the delivery date, for instance a drought, that person would sell the futures contract to another farmer who has the ability to fulfill the terms of the contract to the dealer.

As contracts changed hands, people noticed that the different variables in the market affected the prices of these futures contracts. Soon, people who are not really invested in acquiring the goods involved in the futures contract got involved in the trading of them in order to gain some profits off them before the actual exchange of goods materialize. These people are called speculators as they predict the movements in the markets and try to make use of this knowledge to make decisions on what to do about their assets that are “on paper”.

Oil futures trading applies this concept of futures trading system on oil barrels. Basically the commodity basis of oil futures trading is crude oil. It is because crude oil is an unprocessed commodity that can be further converted into various forms by numerous industries. This is also what makes oil futures contracts a very liquid asset since a lot of companies will be surely involved in the actual exchange of these goods.

Oil Forex Trading


Oil forex trading is a means by which people from all over the world can trade oil futures contracts at the comfort of their own homes. It utilizes the worldwide international over-the-counter foreign exchange market to facilitate the trading using currencies from different countries. It is based on various financial centers from around the world that allows different of buyers and sellers to trade oil futures contracts at any point of the day, except during weekends.

In oil forex trading, the foreign exchange market settles the relative value of each currency. Oil forex trading ensures international trade and investment by making it possible for people from one country that uses a particular currency make a transaction with people from another country with a different currency. The result of this is a very liquid flow of financial capital globally due to the involvement of multiple countries in these trades.

Oil forex trading is especially important in the foreign exchange markets because oil is a very important commodity in the world today, notwithstanding global concerns about the environmental problems caused by it and the calls to reduce our dependency on it. As of now, there is no clear alternative for oil as a source of energy and therefore it is more likely that it will remain to be a valuable commodity for quite some time. And like most transactions in the foreign exchange markets, oil forex trading is affected by a variety of factors especially those that directly involves oil production.

One of the factors that constantly affect oil forex trading is the political conditions of countries that are directly involved in the production of oil. Instances such as a regime change or destabilization of governments in these countries can cause significant changes to the production of oil and cause repercussions in the oil forex trading markets. A particular group of countries to watch out for is the Organization of the Petroleum Exporting Countries or OPEC. This very influential group is composed of 12 oil exporting countries that has the ability to control the prices of oil. Therefore it is worth knowing the political conditions in these oil producing countries if you want to engage in oil forex trading to ensure that you make the right decisions in making transactions.

How To Trade Oil


Commodity futures, also known as futures contract is a business transaction to buy or sell a commodity at a specific date in the future at a specific price. In order for a good to be included in a futures market, it must be standardized, unprocessed, and raw, must have an adequate shelf life for delivery, and there must be price fluctuation and uncertainty for the good. These makes the futures market profitable for people, even to those who are not really interested in buying or selling the actual goods.

There are many things that are traded in a futures market and one of them is oil. It is a very important commodity as it greatly affects the global economy. And with the help of modern internet telecommunications, anyone with enough capital can participate in oil trading. You can now trade oil in New York Mercantile Exchange (NYMEX) or through Forex brokers as contract for difference (CFD). Through oil trading, you can make money with oil without actually owning one, while you are behind a computer screen.

In order to trade oil, you will need an oil broker that will supply you with the virtual trade contracts that you will manage. Oil brokers will also provide you the trading software and market analysis. To obtain profits when trading oil, you need to correctly analyze the available data from the oil markets so that you can use them to your advantage. Your oil broker can also advise you about the trends in the market and make probability estimations of the future direction of it.

When trading oil contracts, you have to pay your oil broker commissions for every trade that you make. Oil brokers have varying prices for buying and selling, which is how they make money out of the whole thing.

You have to keep in mind that oil is a very volatile commodity because it is affected by many global factors such as political crisis or natural disasters. As such, there is no clear-cut formula on when to buy or sell trades successfully. Therefore in oil trading, you win some, you lose some. The important thing is how you are able to manage your finances so that the end result will still be favorable to you.

History of Oil Trading


The history of oil trading can be traced back to commodity trading where goods such as gold, oil, coffee, and orange juice are dynamically traded. In a commodity market, the good must be standardized, raw, and unprocessed. They should also have an adequate shelf life for delivery. Finally, there must be price fluctuation and uncertainty for the goods. These three characteristics make the trading of commodities such as oil possible and profitable.

Commodity trading is something that is not a recent economic phenomenon, although the old forms of it are very much different from what it looks today. Civilizations as old as ancient Sumeria have engaged in commodity trading in order to have a system of delivery of goods and make commerce more efficient and well-organized. Sumerian farmers used a medium very similar to money in the form of clay tokens shaped as livestock when they are trading goats and sheep. They would use these when they would pledge a particular number of livestock to a dealer. They served as the earliest form of futures contract that were guaranteed by local banks back then. Eventually this system grew into a global market for trading gold and silver for other goods.

Meanwhile the beginning of modern commodity trading can be traced to Chicago, where the Chicago Board of Trade was established in 1848. It served as a central place for farmers and dealers to convene and settle prices. With this system, prices and negotiations became more transparent resulting in a standardization of weights and grades based on aggregate supply and demand.

Because of the success of the standardized central market, more farmers and dealers became engaged with futures trading wherein they commit to future exchange of goods in exchange for cash. These trade contracts were securitized by banks and used them as collateral for loans. Eventually these contracts changed hands if the farmer and dealer encountered certain circumstances that would make the deal unfavorable to them. These farmers and dealers noticed the trend that the value of contract changed whenever there is an event in the market, such as bad weather. This became the blueprint of the modern commodity trading that we encounter nowadays. Finally, people who have no intention of selling or acquiring goods began joining the market and became speculators in the now-liquid futures market.

Crude Oil Trading


Crude oil trading can be a lucrative way to earn money. It is however very risky as it can be affected by unforeseen circumstances like natural disasters, political tensions, or oil spills. Therefore in order to be successful in crude oil trading, you do not only need a lot of guts to make risky transactions, you also need intuitive insights that will allow you to see through the vast sea of market information in order to make the right call at the right time.

Crude oil trading takes place through oil brokers who provides the investor with the trading software that is used to make transactions. In addition, they also provide you with an analysis of the market so that you can make an informed choice. This is very useful especially if you are just new to the business since it will allow you to learn your away around through the field. It is because eventually, you will have to make an analysis of the market on your own it is not a good idea to just rely on what other people will say to you.

The most important thing in crude oil trading is forecasting the highs and lows in the market. The idea in order to earn profit from crude oil trading is to assume a long position if the trend in the market is going up, and to assume the short position once you are certain that the price of crude oil barrels are on a steady decline. In order to precisely predict these trends, you have to be aware of what is the latest happenings in the crude oil market. You can do this by being updated with the news.

Another important source of market information in crude oil trading are two macro economic oil data releases: crude oil inventories and natural gas storage. They are released once a week on a fixed schedule by the Energy Information Administration. These two releases can have a strong impact on the markets as it may cause fluctuations and false movements. It is therefore recommended that you hold off on crude oil trading for at least 15 minutes before resuming in order to let the market stabilize itself for a while and so that you can get a more accurate reading of it.