How to trade oil

What is oil trading?

Oil trading is the buying and selling of different types of oil and oil-linked assets with the aim of making a profit. As oil is a finite resource, its price can see massive fluctuations due to supply and demand changes. This volatility makes it extremely popular among traders.

You can use CFDs to trade on oil’s spot price, or the prices of oil futures or options contracts, without having to own any actual oil.

There are three ways you can trade oil:

1. What is the oil spot price?

Oil spot prices represent the cost of buying or selling oil immediately, or ‘on the spot’ – instead of at a set date in the future. While futures prices reflect how much the markets believe oil will be worth when the future expires, spot prices show how much it is worth right now.

For our undated ‘spot’ markets, we use the two nearest futures to calculate the price.

2. What are oil futures?

Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices.

Futures are used by companies to lock in an advantageous price for oil and hedge against adverse price movements. However, they’re popular among speculative traders too as there is no need to take delivery of barrels of oil – although you have to fulfil the contract, this can be via a cash settlement.

The two most popular types are Brent Crude and West Texas Intermediate (WTI), which are traded on the Intercontinental Exchange (ICE) and New York Mercantile Exchange (NYMEX) respectively. They are used as benchmarks for global oil prices, as well as economic health.

3. What are oil options?

An oil option is similar to a futures contract but there’s no obligation to trade if you don’t want to. They give you the right to buy or sell an amount of oil at a set price on a set expiry date, but you wouldn’t be obliged to exercise your option.

There are two types of options: calls and puts. If you thought the market price of oil was going to rise, you might buy a call option. If you thought it was going to fall, you’d buy a put option. You can also sell call and put options, if you wanted to take the opposing positions. Selling options can generate income in quiet markets, as you receive their value at the outside of your trade. But be careful – this is your maximum profit, and you could lose far more if the market goes against you.

Learn what moves the price of oil

The price of oil is primarily moved by the relationship between supply and demand. When there is a demand for oil that outstrips its supply, the price of oil will rise. But if demand falls and supply floods the market, the price of oil will fall.

There are a huge number of factors that can impact oil supply and demand, we’ve looked at four of the most common below.

Factors affecting oil supply and demand

Decide how you want to trade oil with us

Trading on oil

You can trade oil spot prices, futures and options with us via CFDs. Alternatively, you could speculate on the price of CFDs on oil-linked ETFs and company stocks to get an indirect exposure.

Create your oil trading account

You could be ready to take your first position in minutes.

Simply fill out our online form to open an account – there’s no obligation to add funds until you want to place a trade.

Alternatively, you can practise trading first in our risk-free demo account.

Find your oil trading opportunity

You can trade a variety of oil CFD markets including popular crude oils WTI and Brent Crude, as well as no lead gasoline and heating oil.

The best way to identify an opportunity is to keep an eye on breaking news and key price levels, using our range of tools and resources:

Open your first oil CFD trade

Now that you know how you’ll trade and what you want to focus on, it’s time to open your first position.

You’ll need to choose whether to buy or sell the market – depending on whether you think oil will rise or fall in price – and decide on your position size, which will determine the margin you pay.

This is also be a good time to think about how you’ll mitigate risk. We offer a range of solutions for risk management, including stop-losses and limit-close orders – these are used to close trades at predetermined levels of loss and profit respectively.

Ready to open you first trade? Create an account now

Monitor and close your oil position

Once you’ve opened your position, you can monitor the profit or loss of your oil CFD trade in the ‘positions’ section of our platform.

While your trade is open, you should continue to perform technical analysis, identifying key turning points in the market. It’s also important to keep up to date with any news or data releases that could move the price of oil.

Once it’s time to close your position, you can either click ‘close’ or reverse your initial trade.