Tips on trading crude oil futures
For traders, Crude oil not only offers high liquidity but also great opportunities to profit in almost any and every market condition due to its unique position in the global political and economic scenario. Market participants falter in taking the full advantages of fluctuations in Crude oil because of lack of knowledge of the hidden pitfalls and unique characteristics of Crude oil and its markets. Listed below are some tips on how to trade Crude oil futures to one’s benefit:
Understand its underlying characteristics : One needs to understand why and how Crude oil moves, which is essentially due to demand and supply.
Understand the market : Professional hedgers and traders largely dominate the crude oil futures markets. Hedgers speculate on short and long-term directions while professional traders take particular positions to offset physical exposure. Investors and retail traders, on the other hand, probably exert the least influence, which increases when Crude oil trends very sharply.
Select between WTI Crude and Brent :
Read the long-term chart : If one assesses the long-term chart, WTI crude oil prices rose after WWII, peaking later in the decade before declining sharply. In 1999, Crude embarked on a new, powerful uptrend in 1999, peaking in July 2008, before dropping and leveling in 2015.
Picking the right venue : Picking the right venue to trade in Crude oil futures is also essential. For instance, the WTI Light Sweet Crude Oil futures contract on the NYMEX offers superb liquidity but high risk, trading more than 10-million contracts/month. NYMEX also offers many other energy-based products. Another instance is the US Oil Fund, the most popular way to trade Crude via stocks, which tracks WTI futures. Sector funds and oil companies offer diverse and varied industry exposure by tracking general Crude trends. The five biggest oil company funds in the US are VanEck Vectors Oil Services ETF, iShares US Oil & Gas Exploration & Production ETF, and United States Oil Fund LP.