The Advantages and Disadvantages of Oil Trading

Oil has always been an important commodity in any country. It signifies power in industrialisation as well as affects the economy. Having the supply for oil means the opportunity for developing the power industry will be endless; oil is needed for heat and energy, vehicles most importantly for transportation of food and other necessities and machines needed for agriculture even for the medical industry. Thus a country’s economy weighs heavily on having it. 

Oil and Diversification

Oil makes everything in the world spin, so countries which have oil as a natural resource profit from extracting it. The United States of America, Saudi Arabia, Russia, China and Canada are the top five producers of oil. According to recent data, the United States supplies the world with 20% of oil with 18.6 million barrels of oil a day and has been the lead oil producer for three years already. Saudi Arabia and Russia hold the other 11%, which accounts for 11.8 million barrels of oil a day for Saudi Arabia and 10.5 million barrels a day for Russia. Canada, on the other hand, supplies the world with 5.2 million barrels of oil a day, while China produces 4.6 million barrels of oil a day. These two countries hold 6 and 5 per cent of the world’s supply of oil, respectively. 

Oil is a natural resource, and Earth supplies us with it. The problem lies with the amount we need oil, and we consume more and faster than what the Earth can give us. With the oil continuing to deplete and the current pandemic, oil prices dropped significantly over the course of two years. Thus oil-dependent Arab countries are trying to diversify their trading assets and stay away from oil trades.  

For these reasons, the oil supply instability is causing the crude oil traders and investors to shift their investment too. The risk of demand and supply shifting too much, while some oil investors and traders make an attempt to diversify their assets too. This is the reason why you would see numerous ads of UAE brokers trying to alleviate the problem by boosting their online presence. 

So if you are really interested in oil trading and are persistent enough, you will still be able to find oil trading platforms that offer CFDs ( a contract which states that two parties will trade oil at a speculated amount in the future). These oil futures CFDs comes with good deposit bonuses, leverages, and services. 

Oil Futures and why trade it?

Oil futures are a type of oil trade contract which allows the oil transaction to happen at an agreed time in the future at a predetermined amount. Oil futures are pretty risky, but it offers its own advantages such as better leverage, lower trade prices, and longer trade hours. 

Think of it this way, let a certain buyer buy an oil futures contract at $3000 with a set expiration of December. Whatever happens to the price of oil, either it rises or cuts, the buyer will still pay what is on contract. He gains if the oil prices rise and loses if the prices drop. This is what oil investors and traders want from the oil trade market, for as long as you can play your trades right, you can gain from the discrepancies in the volatility of the oil market. 

Most traders trade based on the current oil trends, whether upward or downward, since after a sharp price turn, oil prices remain at that trend for a prolonged amount of time. If the prices are going down, trade short; this is when you go for oil futures with speculations of prices going further down. If there is an upward trend trade long for, you can expect that prices will stay at an upward trend. This is the common trade strategy that oil traders do. Because trading short has more risk, traders who go short can have huge and better gains but are of higher risk. 

Since oil trades are one of the most actively traded commodities, it has a lot of potentials. Therefore, it has its own set of advantages. 

1. Potential Revenue – As mentioned earlier, oil trades can provide you with better investment opportunities. This is because of the oil prices constant fluctuations. If you can make the most out of these movements, you can gain substantial gains even for investments much lower than you invest in stocks. This is why successful traders can gain thousands of dollars from oil trading, since going for oil futures with a contract you made through the speculation of the prices– whether it drops or rises, as long as you get the right futures, you can gain a lot. Though successful traders have to have the right skill sets, knowledge of the oil price market and how it moves and the ability to deal with the risk. 

2. Asset in Demand – Oil has a very limited supply due to oil depletion further. Not all countries can produce the amount of oil they need, nor do they have the resources. Also, there is no substitute that can equal oil. Though renewable energy has been mentioned, it is not adapted more especially to replace oil. This means that oil investors and traders can make the most out of this situation and plan out their oil futures. Moreso, because countries, even large companies, can’t really fully abandon their need for oil.

3. Liquidity – Oil assets provide solid liquidity, and it’s really easy to convert in cash on its spot market value. This is because the oil trade is a very active market, and trades happen in large volumes every day. Most specifically, crude oil, which is the most traded oil in the world. 

4. Leverage – Oil futures offer leverage. Thus, you can form a contract (CFD) without having to borrow money from a broker. The marginal requirements, as well as the capital investment are pretty low, allowing a trader to transact 10 times than in a stock market. It offers better gains; however, it has its risks too since it sometimes amplifies losing money; losses could be of higher value than what you have previously gained and invested. 

5. Simple to Trade – Compared to other assets, it’s pretty much easier to trade oil. Taking the first step in oil futures may be pretty complicated, and creating an oil future account is not always possible. But once you experience this and get the hang of how things fall into place, it will be easier. Futures lose their value as they close their expiry date, so to not lose out your money, buy oil futures contacts after studying the oil market first. The point of an oil futures contract is to predict not based on luck rather on market data analysis what is to happen to oil prices in the future, taking the time to consider political and economic growth too. Of course, having a knowledgeable broker and a reliable platform like Oil Profit Pro is helpful, but building your knowledge is a must too. 

The success of oil trading comes from the knowledge of how the market works and moves. Thus it is important to research and study these data. Because if you can see and speculate these prices, you can expect better opportunities and higher chances at profit gains from oil trading.