For the active trader, the volatility of the oil markets provides many opportunities for profit. The price of oil is often seen as one of the main barometers of the health of the global economy, with a strong relationship between economic growth and the demand for oil and with the benchmark rate being the West Texas Intermediate (WTI) light crude futures contract.Oil prices are affected by the shortage and oversupply, also weather conditions can have a direct impact on prices, as well as the political situation in the Middle East to influence oil prices. Oil is often regarded as one of the safe haven when the stock market is not performing well, however the public is much more in need of oil than the need of stocks.
Because global oil market is open 24 hours, the oil is very sensitive and the price continues to move – so it is important for day traders to make the position of entry and exit quickly. One of the easiest ways to trade on oil prices is by using contracts for difference (CFDs). Oil is one of the most commonly traded markets which means that you should be able to get in or out whenever you want irrespective of the size of the trade.
Crude oil is the most actively traded commodity in the world. At NYMEX Light Division, light crude oil futures contract has the largest volume of trade.
One crude oil CFD is usually based on 100 barrels, which means that every dollar change in the quoted oil price corresponds to $100 profit or loss on the CFD. In other words a 1 cent in the oil price would result in a profit or loss of a dollar for each CFD held.
CFD Trading Example:
Spot WTI Light Crude Oil
You’ve noted increased speculation in the price of Spot WTI Light Crude Oil and believe the price will start to rise. You decide to buy 1 WTI Light Crude Oil CFDs at 100.00.
Things to note:
In the next few days, you note that the price has risen and you decide to close part of your position and sell 1 CFDs at 105.00. This realises a profit of (10500-10000) X your stake of 1 = USD$ 500. Total Profit = USD$ 500